Registration number C 12271
AX GROUP P.L.C.
Annual Report and Consolidated and Separate
Financial Statements
For the year-ended 31 October 2022
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
Contents
Page
Directors, Officers and Other Information
1
Directors’ Report
2 – 17
Statement of Directors’ Responsibilities
18
Corporate Governance – Statement of Compliance
19 – 21
Statements of Profit or Loss and Other Comprehensive Income
22
Statements of Financial Position
23 – 24
Statements of Changes in Equity
25 – 26
Statements of Cash Flows
27
Notes to the Financial Statements
28 – 80
Independent Auditor’s Report
81 – 90
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
1
Directors, Officers and Other Information
Registration:
AX Group p.l.c. was registered in Malta as a public Limited Liability Company under the Companies Act, Cap. 386 of the Laws of Malta on 18 January 1991, with the registration number C 12271.
Directors:
Mr Angelo Xuereb
Ms Denise Xuereb
Ms Claire Zammit Xuereb
Mr Josef Formosa Gauci
Mr Christopher Paris
Mr John Soler
Mr Michael Warrington
Secretary:
Dr Edmond Zammit Laferla
Registered office:
AX Group
AX Business Centre
Triq id-Difiza Civili
Mosta, MST 1741
Country of incorporation:
Company registration number:
C 12271
Auditors:
Ernst & Young Malta Limited
Regional Business Centre
Achille Ferris Centre
Msida, MSD 1751
Malta
Principal bankers:
Bank of Valletta p.l.c.
Labour Avenue
Naxxar
Malta
Legal adviser:
Dr David Wain
AX Group
AX Business Centre
Triq id-Difiza Civili
Mosta, MST 1741
Malta
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
2
The Directors present their annual report and the audited consolidated and separate financial statements (“the financial statements”) of AX Group p.l.c. (“the Company”) and its subsidiaries (collectively “the Group” or “AX Group”) for the year-ended 31 October 2022.
Principal activities
Performance review
Company
Revenue for the Company amounted to EUR6,280,049 (2021: EUR10,848,440). This included management fees of EUR1,364,562 (2021: EUR626,097), dividends received from subsidiaries of EUR4,807,654 (2021: EUR10,110,769) and rental income of EUR107,833 (2021: EUR111,574). Staff costs incurred amounted to EUR2,359,424 (2021: EUR1,673,110) and operating costs amounted to EUR760,507 (2021: EUR2,347,223).
During 2022, AX Real Estate p.l.c., a subsidiary of the Company, issued bonds of an aggregate principal amount of EUR40,000,000 (2022 – 2032), having a nominal value of EUR100 each, bearing interest at the rate of 3.5% per annum. EUR21,645,400 were assigned to the Company as part conversion of the loan receivable from AX Real Estate p.l.c. and 525,000 of these debt instruments were disposed of during the year. The debt instruments held were remeasured at fair value at year end, resulting in a decrease in fair value of EUR631,500.
Operating profit of the Company amounted to EUR2,005,158 (2021: EUR54,091,487). The prior year profit includes a gain on disposal of investments in subsidiaries of EUR46,017,445, previously held at cost, resulting from a reorganisation exercise carried out to consolidate the main property letting activities of the Group into one newly formed division under AX Real Estate p.l.c., to form this new subgroup.
Finance costs increased by EUR1,079,276 in the current year due to a full year of interest incurred on loans with subsidiaries in the current year when compared to the prior year, wherein the Company only incurred interest following the merger of AX Holdings Limited into the Company on 24 March 2021. Finance income increased by EUR1,921,397 in the current year mainly due to EUR549,550 interest received on the debt instruments assigned to the Company as mentioned above and interest income from new loans to subsidiaries amounting to EUR1,352,147.
The profit for the year amounted to EUR941,527 (2021: EUR53,091,999).
Group
During the current year, the Group registered total revenue of EUR38,269,722 (2021: EUR35,418,160).
The Hospitality division’s pace of recovery from the COVID-19 pandemic during the first quarter of the current year has been constrained by the spread of the Omicron variant. The lifting of restrictions by the local health authorities in May 2022 allowed for normal operations to be resumed with the Hospitality division reaching budgeted revenues for the remaining quarters of the current year. In fact, revenue from the Hospitality division increased by 61% during the current year over the prior year despite the Seashells Resort at Suncrest hotel in Qawra (“Suncrest Hotel”) being closed for refurbishment and extension during the current year.
The Healthcare division registered an increase in revenue of 8.1% compared to the prior year. The independent apartments at Hilltop Gardens Retirement Village were fully occupied by the reporting date. On the other hand, the uncertainty of the COVID-19 pandemic continued to hinder the expected recovery in occupancy at the Simblija Care Home in the first half of the year with elderly people still reluctant to move into a care home environment. However, from May onwards, the Simblija Care Home experienced a steady recovery in occupancy following the lifting of restrictions by the local health authorities.
The Construction division was largely involved in two main internal developments, the extension and refurbishment of the Suncrest Hotel and the redevelopment of the Verdala site in Rabat (“Verdala Site”). Works at Suncrest Hotel are progressing at a steady pace, and it is expected that the hotel will reopen to the public by May 2023. By the end of October, construction works on the first block at the Verdala site was complete. Construction works on the second block were progressing steadily whilst the foundations of the third block were at an advanced stage.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
3
Directors’ Report – continued
Performance review - continued
In addition to these major projects, the Construction division continued works on the redevelopment of Palazzo Lucia in Merchant Street Valletta to be converted into a premium office.
Construction works on external projects, namely the Isla Bastions and the Maria Assumpta Secondary School handball pavilion were finalised during the year, whilst works on the Maritime Museum in Birgu and the restoration of the Jesuits Church in Valletta were at an advanced stage of completion at the reporting date. On the other hand, works on the extension of the St. John Co-cathedral were progressing steadily.
During the prior year, the Real Estate and Developments division closed the sale of most of the units at the Targa Gap complex in Mosta and Falcon House in Sliema and generated EUR8,000,350 in revenue. In 2022, this division generated EUR1,292,128 in revenue from the sale of the remaining apartments. In addition, the new office development at Falcon House in Sliema as well as the remaining offices at AX Business Centre in Mosta were fully taken up by third parties.
The Group recorded a share of results of associates and joint ventures of EUR848,954 (2021: EUR541,268). This is largely resulting from the Group's investment in Valletta Cruise Port p.l.c. whose performance has been steadily improving following the lifting of the COVID-19 restrictions in May 2022.
Through the investment in an associate undertaking, Imselliet Solar Limited, a new photovoltaic plant at Hilltop Gardens Retirement Village has been built, this being the Group’s third investment in renewable energy projects.
Operating results during the year decreased by EUR2,955,936, from a profit of EUR4,929,455 in the prior year to a profit of EUR1,973,519 in the current year. Apart from the movements explained above, the decrease is also attributable to a lesser fair value gain on investment properties recorded in the current year when compared to the prior year.
The Group’s loss before taxation for the year amounted to EUR1,303,002 (2021: profit before tax of EUR1,455,148). As at year-end, the AX Group’s equity stood at EUR248,222,647 (2021: EUR237,142,681).
Financial key performance Indicators
*The Group measuresAdjusted Earnings before Interest, Tax, Depreciation and Amortisation (“Adjusted EBITDA”) as operating profit/(loss) after adjusting for gains/(loss) on revaluation of investment properties, gain/(loss) on disposal of investment in subsidiaries, gain/(loss) on disposal of financial asset and depreciation. This key performance indictor is not defined by International Financial Reporting Standards but can be directly calculated with reference to the Statement of Profit or Loss.
Going concern
Having made an appropriate assessment of going concern as discussed in Note 2.1 to these financial statements, the Directors, at the time of approving these financial statements, have determined that there is reasonable expectation that the Group and the Company has adequate resources to continue operating for the foreseeable future. For this reason, these financial statements have been prepared on a going concern basis which assumes that the Group and the Company will continue in operational existence for the foreseeable future and will meet their financial obligations as and when they fall due.
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Revenue and other operating income
38,442,989
35,805,634
6,291,931
10,891,148
Adjusted EBITDA*
7,220,246
6,779,181
3,172,000
6,870,815
Operating profit
1,973,519
4,929,455
2,005,158
54,091,487
Net finance costs
(4,125,475)
(4,015,575)
(1,534,490)
(2,376,611)
(Loss)/profit after tax
(249,104)
1,928,278
941,527
53,091,999
(Loss)/earnings per share
(0.21)
1.66
Total equity and liabilities
422,759,390
374,099,250
174,824,110
171,703,010
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
4
Directors’ Report – continued
Principal risks and uncertainties
The Company is exposed to risks inherent to its operation and can be summarized as follows:
1.Strategy risk
Risk management falls under the responsibility of the Board of Directors. The Board is continuously analysing its risk management strategy to ensure that risk is adequately identified and managed. The Audit Committee regularly reviews the risk profile adopted by the Board of Directors.
2.Operational risks
The Company’s revenue is mainly derived from interest charges and rental income charged to related parties and hence the Company is heavily dependent on the performance of the AX Group. The Company regularly reviews the financial performance of the AX Group of companies to ensure that there is sufficient liquidity to sustain its operations.
3. Legislative risks
The Company is governed by a number of laws and regulations. Failure to comply could have financial and reputational implications and could materially affect the Company’s ability to operate. The Company has embedded operating policies and procedures to ensure compliance with existing legislation.
Financial risk management and exposures
Note 37 to the financial statements provides a detailed analysis of the financial risk to which the Group and the Company are exposed.
Dividends and reserves
The Directors do not recommend payment of a final dividend.
Events after the reporting period
In November 2022, the Company declared an interim dividend amounting to EUR1,100,000.
In January 2023, Suncrest Hotels p.l.c., a subsidiary of the Company, secured a loan facility with a local financial institution amounting to EUR30,500,000 while AX Hotel Operations p.l.c., another subsidiary of the Company, secured a loan facility with the same financial institution amounting to EUR18,000,000. These loan facilities have been provided to enable the Group to complete the extension of the Suncrest Hotel and redevelopment of the Lido in Qawra. The loan facilities bear interest of 4.25% p.a. and the outstanding loan amounts are repayable over a 15-year term from the date of the first drawdown with a 12-month capital moratorium.
In January 2023, AX Real Estate p.l.c., a subsidiary of the Company, declared a dividend amounting to EUR304,208 due to non-controlling interest.
Verdala Terraces Limited, a subsidiary of the Company, secured a loan facility with a local financial institution in February 2023 amounting to EUR36,000,000 to finance the Verdala Terraces residential project in Rabat. The Loan Facility bears an interest rate of 4.66% per annum and the outstanding loan amounts are repayable within 7 years from the date of the first drawdown. Loan repayments are to be affected from the proceeds generated from sale of units forming part of the Verdala Terraces project.
In line with management’s intention to dispose of the bonds allocated by AX Real Estate p.l.c. to the Company, the Company disposed of EUR2.9million of such bonds subsequent to year end.
Directors
In accordance with the Company’s Articles of Association, the present Directors remain in office.
Auditors
Ernst & Young Malta Limited have expressed their willingness to continue in office and a resolution for their re-appointment will be proposed at the Annual General Meeting.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
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Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION
In line with the Directive 2014/95/EU and pursuant to Article 177 of the Companies Act, Cap. 386 of the Laws of Malta and in terms of the Sixth Schedule to the Act, the Directors hereby report the impact of its activities on environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters. The Group’s reporting scope corresponds to that used in financial statements.
Our Business Model
The AX Group is primarily engaged in four main business sectors namely, Care, Construction, Hospitality, Real Estate and Development and is also involved in renewable energy. We strive to leverage our entrepreneurial skills to deliver high-quality innovative developments. This is achieved by inspiring our people to learn from our past, and to embrace the future with courage and optimism. Our values of creativity, determination and integrity underpin and support everything we do.
Founded by chairman Angelo Xuereb in 1975, AX Group began its existence as a civil engineering firm. In the ensuing decades, the Group took steps towards diversification by expanding its business portfolio to include restoration works, hotels, restaurants, care homes, and many other high-quality projects. In 2018, the Group consolidated its various businesses under the AX brand.
Creating effective Environmental, Social, and Governance (ESG) policies is a top priority for our organization. We recognize the important role that businesses play in shaping a sustainable future and are committed to aligning our practices with responsible principles. To achieve this, we have formed a dedicated ESG committee comprised of cross-functional leaders from various divisions and departments. The committee is tasked with researching industry best practices, engaging with stakeholders, and developing a comprehensive set of ESG policies that will guide our operations and decision-making. In addition to the focus on value creation, the ESG committee aims to enhance data collection and data management processes to facilitate reporting on sustainable initiatives. Going forward, the Group will be setting further internal key performance indicators in line with industry standards. Our goal is to ensure that our ESG policies are robust, measurable, and continuously improved to drive positive impact for our stakeholders and the communities we serve.
Environmental Consciousness
The AX Group is increasingly conscious of its ecological responsibilities and nowadays all business decisions take into consideration both the financial and environmental aspects. We strive to minimise our negative environmental externalities both in terms of the developments we build as well as through our own internal practices. We are constantly on the look-out for opportunities to improve on energy efficiency, reduce waste, carbon and greenhouse gas emissions and ultimately reduce our environmental footprint.
Policies and Risks
At AX Group, we recognise the importance of environmental sustainability and the impact our operations can have on the environment. While we currently do not have formal environmental policies in place, we are actively working on developing a policy framework that will guide our operations towards more sustainable practices. The Group will also embark on a process to conduct a double materiality assessment which will identify material environmental impacts. We believe that taking a proactive approach to environmental sustainability is crucial for the long-term success of our business, and for the health of the planet. Our strategy in the coming years aims to focus on establishing transition plans which will involve a phasing in approach to shift our business model, operations, and asset base towards increased sustainability.
The Group is exposed to environmental risks by way of its supply chain, be it construction materials or hospitality consumables. A shortage in supply of these key materials is a risk for the Group and in this regard management has established a close relationship with both local and foreign key suppliers that to ensure that this risk is mitigated.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
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Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION - continued
Environmental Consciousness - continued
Design and Construction of Buildings - continued
Environmental sustainability is an intrinsically valued objective of the Group and at the centre of our activities, reflected especially in the way we have been designing our buildings over the years. Our Development and Construction teams take great care in designing buildings with energy efficiency features including accounting for the solar orientation, ensuring less reliance on electrical lighting as well as heating and cooling, including features such as thermal and acoustic insulation, natural ventilation systems, roof and wall insulation and double-glazed UV protection windows, amongst others.
For instance, at the design stage of the Verdala project, the Group has studied the building orientation in huge detail to ensure the best balance is achieved between practicality and luxury whilst maximising the picturesque countryside views as well as focusing on energy efficiency and environmental designs. The building is designed in a way to secure an optimal shelter from weather elements by receding the living spaces into the core of the building whilst large, double-glazed apertures draw in natural light. The design and innovative building techniques selected help in reducing the amount of energy required for cooling and heating. In addition, a large reservoir has been constructed to capture rainwater which will be used for irrigation of the large landscaped open spaces.
Carbon Matters
As a Group, we aim to be at the forefront of the business community in championing actionable carbon neutral policies and protocols in our business activities. In the past year, management has been raising awareness at all levels throughout the AX Group of the carbon footprint implications of our business. In preparation for the upcoming regulatory obligations emanating from the Corporate Sustainability Reporting Directive (CSRD), the Group has already taken action to commence measuring carbon emissions from the main areas of the business. We have taken several steps to mitigate and lessen the Group’s carbon footprint mainly by opting for energy efficient equipment when possible and investing heavily in renewable energy. We are currently conducting research and gathering data in order to be able to set-out realistic targets in relation to carbon footprint going forward.
The Group has earmarked an unutilised airspace on one of its properties and is currently considering installing solar panels to further reduce its carbon footprint. During 2022, the Group generated 3.2 million KWH from the solar panels installed at the Imselliet solar farm in Mgarr, Hilltop Gardens Retirement Village in Naxxar and AX Business Centre in Mosta. The Group is exploring other opportunities to install additional solar panels on top of its properties.
We also remain committed to broaden our sustainability practices, through the investment in new solutions for our developments and operations. In fact, the Group has embarked on a programme to gradually replace the fleet of light duty vehicles with electric vehicles with the ultimate aim of achieving carbon neutrality. In this regard, the Group is also upgrading its infrastructure and installing electric vehicle charging points in all of the car parks owned by the Group. This facility will encourage our hotel guests and customers to make use of electric vehicles during their stay, thereby reducing carbon emissions.
Waste
Conscious about the substantial waste generated from the various Group’s divisions, we have been measuring waste generated from selected divisions to better understand the type and source of waste. It is clear that the waste generated by the Group varies depending on the nature of the business and the volume of business conducted. Our strategy in the coming years aims to reduce waste generation considerably by revisiting internal processes and ensuring that all waste generated by the Group is separated and recycled, where possible. In this regard, we have renegotiated the agreements with our waste collection contractors and extended the collection of additional types of waste to ensure our waste is adequately separated, recycled and properly disposed of.
The Group is also introducing recycle bins in all of AX Hotels rooms to educate and encourage hotel guests to separate waste at source rather than disposing of all their waste throughout their stay into the mixed waste bin. This initiative will also be introduced at Hilltop Gardens Retirement Village, our Head Office at AX Business Centre and in the upcoming Verdala hotel in Rabat.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
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Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION - continued
Environmental Consciousness - continued
Waste - continued
Following the ongoing data gathering exercise referred to above, the Group is building internal knowledge on its waste footprint and management which will lead to informed decisions when introducing improved sustainable practices. For example, in our Sliema hotels, we have replaced complimentary single-use water bottles in hotel rooms with glass reusable bottles that can be refilled from various locations at the hotel. This initiative by itself will see a reduction in the consumption of circa 90,000 plastic bottles which would roughly equate to 11,000kg of C02 emissions. It is planned that a similar initiative will be rolled out in the other hotel offerings during the next financial year.
Within the Construction division, all clean concrete material waste is being disposed of in a recycling facility where such material is being repurposed into concrete by-products. Furthermore, an agreement is currently in place with a local contractor whereby steel waste generated is recycled. Thus far, the Construction division has intensified its waste separation efforts and will be launching an initiative to equip all construction sites with separation containers to minimise the considerable environmental impact generated from the construction activities.
Others
As a Group, we strive to take great care and consideration of our surroundings. In this regard, to celebrate Earth Day in April 2022, employees from all divisions of the Group gathered for a widespread initiative to clean up several prominent areas around Malta, including Wied il-Ghasel in Mosta, Tal-Virtu in Rabat, as well as the Qawra and Sliema promenades. Furthermore, employees from our Care sector organised a clean-up of It-Torri tal-Għallis following gale force winds which littered the area with plastic and other waste from the Magħtab landfill.
EU Taxonomy Disclosure
The EU Commission’s “Action Plan on Financing Sustainable Growth” aims to provide the economic and financial system in the EU with a more sustainable strategy to achieve climate neutrality by 2050. As part of its action plan, the EU’s Taxonomy Regulation 2020/852 (“EU Taxonomy” or “the Regulation”) establishes a standardised classification system for sustainable economic activities and provides guidance on those activities which qualify as contributing to the Taxonomy’s environmental objectives.
The Regulation defines the following six environmental objectives:
In accordance with Article 8 of the EU Taxonomy, AX Group is required to disclose information about how and to what extent the Group’s activities qualify as environmentally sustainable. Furthermore, the regulation requires the disclosure of Key Performance Indicators (KPIs), namely, the proportion of revenue (“Turnover”), capital expenditures (“CapEx”) and operating expenditure (“OpEx”) which are considered as eligible and/or aligned in terms of the EU Taxonomy.
The EU Taxonomy is supplemented by delegated acts which establish ‘technical screening criteria’. These criteria define the specific requirements and thresholds for an activity to be considered as “significantly contributing” to a sustainability objective and “does not significantly harm” the other objectives. At present, the EU regulation is effective for objectives related to climate change mitigation and climate change adaptation, with further delegated acts to be published at a later stage to cover the remaining four objectives.
Climate Change Mitigation
Climate Change Adaptation
Sustainable use and Protection of Water and Marine Resources
Transition to a Circular Economy
Pollution and Prevention Control
Protection and Restoration of Biodiversity and Ecosystems
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
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Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION - continued
EU Taxonomy Disclosure - continued
Taxonomy-Eligible and Taxonomy-Aligned Economic Activities
An economic activity is “Taxonomy-Eligible” if it is listed in the EU Taxonomy’s delegated acts. Once all Taxonomy-Eligible activities have been determined, an assessment shall be made to establish which of the eligible activities are also “Taxonomy-Aligned”.
In accordance with the EU Taxonomy, economic activities of undertakings are considered as “Taxonomy-Aligned” if they:
-make a substantial contribution to at least one environmental objective, by meeting certain ‘technical screening criteria’;
-do no significant harm (DNSH) to the achievement of the five other environmental objectives; and
-comply with minimum social safeguards.
Following a thorough examination involving all of the Group’s business sectors and functions the following Taxonomy-Eligible economic activities have been identified for the financial year ending 31 October 2022:
Economic Activity
Taxonomy Reference Number
Environmental Objective/s
Construction
Activity 7.1
Climate Change Mitigation
Climate Change Adaptation
Real Estate & Development
Activity 7.7
Climate Change Mitigation
Climate Change Adaptation
Residential Care Activities
Activity 12.1
Climate Change Adaptation
Since the Regulation covers only around 40% of economic activities performed by listed entities, some activities performed by the Group, such as hotel operations, are presently not covered by the EU Taxonomy. As a result, such activities are considered as non-eligible for the purpose of computing the relevant KPIs. That being said, there are a number of sustainable initiatives under these non-eligible industries which have been undertaken by the Group as disclosed in “Environmental Consciousness” in this report.
Accounting Policy for Taxonomy Disclosures
In order to identify the business activities covered by the EU Taxonomy, the Group relied on the Climate Delegated Act 2021/2139, specifically, Annex I and II to this Act.
Eligible activity classification was done through officially assigned NACE codes, specifically F41.2 (Construction), L68 (Development and Real Estate) and Q87.3 (Residential Care activities). Any activities included in the delegated acts which have no assigned NACE code are also considered at classification stage. During the year, no such activities were identified by the Group.
The evaluation of the eligibility of the Group’s economic activities has been conducted on the basis of the EU Taxonomy and Disclosure Delegated Act (Annex I – KPIs of non-financial undertakings) and its definition of the denominator and nominator of the three required KPIs (turnover, CapEx and OpEx). It was performed through a methodological approach consisting of:
Taxonomy-Eligible Activities•Taxonomy Aligned•Taxonomy Non-Aligned
Taxonomy Non-Eligible Activites
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
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Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION - continued
EU Taxonomy Disclosure - continued
Accounting Policy for Taxonomy Disclosures - continued
I.Extracting a total denominator for the three KPIs from the financial reporting system,
II.Identifying those activities that might fall within the list of economic activities covered in the delegated acts,
III.Documenting and assessing for each of the Group’s economic activities their ’eligibility’ to the environmental objectives of the EU taxonomy in order to determine the numerator of each of the 3 KPIs mentioned above.
For reports issued from 2023, the Group is required to report on the alignment of its eligible business activities. In order to determine alignment, reference is made to the EU Taxonomy and the Climate Delegated Act. The assessment to establish Taxonomy alignment involves:
I.Determining if the eligible economic activities meet the ‘Technical Screening Criteria’ (TSC) defined by the delegated acts,
II.Determining if the eligible economic activities meet the ‘Do No Significant Harm’ (DNSH) criteria defined by the delegated acts,
III.Assessing whether the Minimum Social Safeguards are met in terms of the Final Report on Minimum Safeguards issued by the Platform on Sustainable Finance,
IV.Determining the KPIs based on the proportion of aligned (if all criteria in (I)-(III) are met) and non-aligned (should any one criterion not be met) eligible economic activities.
The process of determining alignment is cumulative, meaning that, if one or more of the Technical Screening Criteria or Do No Significant Harm criteria or Minimum Social Safeguards, are not met, the economic activity automatically qualifies as eligible but is not aligned.
The Group is aware that the disclosures required by the Disclosure Delegated Act are not subject to the materiality assessment, therefore all economic activities have been considered. Where an economic activity contributes substantially to more than one environmental objective, the higher percentage is taken to avoid any double counting. Furthermore, the aggregation of eligible and non-eligible activities should always amount to 100%.
Key Performance Indicators
The Group is required to report on three KPIs: Turnover, CapEx and OpEx. KPIs are provided at the level of the Group based on consolidated financial statements.
•Turnover refers to revenue from products or services associated with Taxonomy-eligible and Taxonomy-aligned economic activities. The Turnover considered for this analysis covers all business activities of the Group, net of intra-group adjustments to take into account consolidated figures.
•CaPex is related to assets or processes that are associated with Taxonomy-eligible and Taxonomy-aligned economic activities; part of a plan to expand Taxonomy-aligned economic activities or to allow Taxonomy-eligible economic activities to become Taxonomy-aligned (‘CapEx plan’). CapEx consists of additions to fixtures and fittings, plant and machinery and land and buildings considered before depreciation, amortisation and any re-measurements recognised by the Group.
•OpEx is related to assets or processes associated with Taxonomy-eligible and Taxonomy-aligned economic activities, including training and other human resources adaptation needs, and direct non-capitalised costs that represent research and development. OpEx consists of all operating expenditures relating to the day-to-day running of the Group properties and operations, including staff costs, and is calculated on a net basis at consolidated level.
The numerator for each KPI considers the relevant company-by-company figure, whilst the denominator aggregates the totals of all Group companies.
Based on the above considerations and methodology, the tables below show the actual KPIs related to the EU Taxonomy, including comparatives.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
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Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION - continued
EU Taxonomy Disclosure - continued
Key Performance Indicators – continued
KPIs - FY2022
TURNOVER
CAPEX
OPEX
Taxonomy Eligible - Aligned
0%
0%
0%
Taxonomy Eligible - Not Aligned
40.2%
95.0%
38.7%
Non-Eligible
59.8%
5.0%
61.3%
TOTAL
100%
100%
100%
KPIs - FY2021
TURNOVER
CAPEX
OPEX
Taxonomy Eligible - Aligned
0%
0%
0%
Taxonomy Eligible - Not Aligned
58.9%
64.1%
51.1%
Non-Eligible
41.1%
35.9%
48.9%
TOTAL
100%
100%
100%
The above KPIs demonstrate that for the financial year ending 31 October 2022, Taxonomy-eligible activities increased since the previous year. The Group’s revenue generated from economic activities that are deemed as taxonomy eligible decreased slightly from 58.9% to 40.2%. Capital Expenditure increased significantly from 64.1% to 95.0% due to additional investment in PPE during the year. On the other hand, Taxonomy-eligible Operating Expenditure decreased from 51.1% to 38.7% during the year.
In order to determine alignment, a ‘Substantial Contribution’ assessment was conducted for each of the three eligible economic activities: Construction, Real Estate & Development and Residential Care Activities. The Technical Screening Criteria outlined for the two environmental objectives (Climate Change Mitigation and Climate Change Adaptation) was analysed per eligible economic activity. However, one of the limitations encountered in the determination of Taxonomy-alignment, is the lack of available data when assessing the Technical Screening Criteria.
If one criterion is not met, then the economic activity would not be considered as substantially contributing to an environmental objective and thus cannot be considered as aligned. For this reason, Taxonomy-aligned activities for the year account for 0% of revenues of the Group, and, as a consequence, CapEx and OpEx also amount to 0%. The large difference between eligible and aligned activities is primarily due to the stricter conditions associated with alignment compared to eligibility. Going forward, the Group is committed to identify such gaps and establish procedures to gather data required by the Climate Delegated Act.
The KPIs for the year ending 31 October 2021 were updated in line with the current year methodology since the methodology was fine-tuned and updated. In fact, the comparative KPI percentages vary slightly due to:
(1)A change in calculation methodology from gross basis to a net basis, based on consolidated financial statements.
(2)The inclusion of figures relating to ‘Residential Care Activities’ with NACE code Q87.3 which are deemed to be an eligible economic activity in terms of the Climate Delegated Act.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
11
Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION - continued
EU Taxonomy Disclosure – continued
Key Performance Indicators – continued
In terms of the Disclosures Delegated Act, the above information shall be presented in the following format:
(1)Turnover KPIs
Substantial Contribution Criteria
DNSH Criteria
Economic Activities
Codes
Absolute Turnover
Proportion of Turnover
Climate Change Mitigation
Climate Change Adaptation
Water and mineral resources
Circular Economy
Pollution
Biodiversity and Ecosystems
Climate Change Mitigation
Climate Change Adaptation
Water and mineral resources
Circular Economy
Pollution
Biodiversity and Ecosystems
Minimum Safeguards
Taxonomy Aligned proportion of Turnover (Year N)
Taxonomy Aligned proportion of Turnover (Year N-1)
NACE
EUR
%
%
%
%
%
%
%
Y/N
Y/N
Y/N
Y/N
Y/N
Y/N
Y/N
%
%
A. TAXONOMY ELIGIBLE ACTIVITIES
A.1. Taxonomy-aligned)
Turnover of A.1
0
0%
0%
0%
N/A
N/A
N/A
N/A
0%
0%
A.2 Taxonomy-Eligible but not Taxonomy-Aligned
Construction
F41.2
7,024,506
18.4%
Real Estate and Development
L68
2,655,052
6.9%
Other Residential Care Activities
Q87.3
5,689,421
14.9%
Turnover of A.2
15,368,979
40.2%
0%
0%
Total (A) = (A.1 + A.2)
15,368,979
40.2%
0%
0%
B. TAXONOMY NON-ELIGIBLE ACTIVITIES
Turnover of Taxonomy Non-Eligible Activities
22,900,743
59.8%
TOTAL TURNOVER (A+B)
38,269,722
100%
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
12
Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION - continued
EU Taxonomy Disclosure – continued
Key Performance Indicators – continued
(2)CapEx KPIs
Substantial Contribution Criteria
DNSH Criteria
Economic Activities
Codes
Absolute CAPEX
Proportion of CAPEX
Climate Change Mitigation
Climate Change Adaptation
Water and mineral resources
Circular Economy
Pollution
Biodiversity and Ecosystems
Climate Change Mitigation
Climate Change Adaptation
Water and mineral resources
Circular Economy
Pollution
Biodiversity and Ecosystems
Minimum Safeguards
Taxonomy Aligned proportion of CAPEX (Year N)
Taxonomy Aligned proportion of CAPEX (Year N-1)
NACE
EUR
%
%
%
%
%
%
%
Y/N
Y/N
Y/N
Y/N
Y/N
Y/N
Y/N
%
%
A. TAXONOMY ELIGIBLE ACTIVITIES
A.1. Taxonomy-aligned)
CAPEX of A.1
0
0%
0%
0%
N/A
N/A
N/A
N/A
0%
0%
A.2 Taxonomy-Eligible but not Taxonomy-Aligned
Construction
F41.2
1,020,033
2.6%
Real Estate and Development
L68
36,181,256
92.4%
Other Residential Care Activities
Q87.3
5,338
0.0%
CAPEX of A.2
37,206,627
95.0%
0%
0%
Total (A) = (A.1 + A.2)
37,206,627
95.0%
0%
0%
B. TAXONOMY NON-ELIGIBLE ACTIVITIES
CapEx of Taxonomy Non-Eligible Activities
1,965,007
5.0%
TOTAL CAPEX (A+B)
39,171,634
100%
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
13
Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION - continued
EU Taxonomy Disclosure – continued
Key Performance Indicators – continued
(3)OpEx KPIs
Substantial Contribution Criteria
DNSH Criteria
Economic Activities
Codes
Absolute OPEX
Proportion of OPEX
Climate Change Mitigation
Climate Change Adaptation
Water and mineral resources
Circular Economy
Pollution
Biodiversity and Ecosystems
Climate Change Mitigation
Climate Change Adaptation
Water and mineral resources
Circular Economy
Pollution
Biodiversity and Ecosystems
Minimum Safeguards
Taxonomy Aligned proportion of OPEX (Year N)
Taxonomy Aligned proportion of OPEX (Year N-1)
NACE
EUR
%
%
%
%
%
%
%
Y/N
Y/N
Y/N
Y/N
Y/N
Y/N
Y/N
%
%
A. TAXONOMY ELIGIBLE ACTIVITIES
A.1. Taxonomy-aligned)
OPEX of A.1
0
0%
0%
0%
N/A
N/A
N/A
N/A
0%
0%
A.2 Taxonomy-Eligible but not Taxonomy-Aligned
Construction
F41.2
5,224,736
16.7%
Real Estate and Development
L68
2,553,914
8.2%
Other Residential Care Activities
Q87.3
4,299,373
13.8%
OPEX of A.2
12,078,023
38.7%
0%
0%
Total (A) = (A.1 + A.2)
12,078,023
38.7%
0%
0%
B. TAXONOMY NON-ELIGIBLE ACTIVITIES
OpEx of Taxonomy Non-Eligible Activities
19,144,720
61.3%
TOTAL OPEX (A+B)
31,222,743
100%
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
14
Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION - continued
Social Matters
AX Group strives to enhance the quality of life of its employees, its consumers, the community and society as a whole. Through varying initiatives, the Group tries to ensure the well-being of both its employees as well as other members of society.
The Group employs close to 1,000 employees (including both directly employed as disclosed in Note 10 and subcontracted employees), from all walks of life and with a spectrum of skill sets. We believe that the Group is only as strong as our people, and therefore, their happiness and well-being remain of utmost importance.
We prioritise our employees’ mental health and seek to create a supportive workplace where people are empowered to bring their best selves to work. In 2022, we have concluded a joint programme with Therapy Works and Crisis Resolution Malta, where employees can seek professional and confidential help if required free of charge.
Long-term Development of Personnel
At AX Group we firmly believe in the long-term investment in our people and aim to be one of the top employers of choice in the markets we operate in. We do so by focusing our employment strategy on these key principles:
•Positive workplace culture
•Attracting the best fit talent
•Recognising and rewarding employees
•Employee training and career development
During 2022, the Group carried out 14,003 hours of training equating to an average of 14 hours per employee. Through the AX Careers online portal and the Knowledge Centre, the Group aims at stepping up its recruitment – providing applicants with an understanding of the values of the Group, whilst also training and developing the employees in their jobs to ensure longer retainment of personnel.
Performance of staff is evaluated through a periodic evaluation based on objective setting and feedback on job performance. The assigned reviewers set yearly objectives and targets with the appraisee which are then monitored and reviewed throughout the year.
We have also shown our appreciation and gratitude towards employees who have given their unwavering service to the Group over the years, during the AX Group’s Annual Long Service Employee Awards Night which was held in May 2022. Over 40 employees from all divisions of the Group were recognised for their commitment and long service with the Group ranging between 5 and 30 years. During this event, an employee was presented with the Lifetime Achievement Award in recognition of his hard work and dedication over the long years well over retirement age.
Workplace Diversity and Inclusion
AX Group believes in the benefits of having a diversified workplace environment and it is committed to promote inclusion and respect for human rights at all levels of the Group. The Group has long been embracing multiculturalism, and currently circa 71% of the staff compliment are foreign nationals. These foreign nationals come from over 60 countries and a considerable number of these foreign nationals are from outside the EU. We understand that this multicultural pool of staff brings new opportunities, more talent and a wider perspective to the entire Group. The respective Human Resources departments are continually working to ensure that these foreign nationals are welcome and that they integrate with the workplace culture of the AX Group.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
15
Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION - continued
Social Matters – continued
Respect for Human Rights
The Group is committed to respecting human rights of its employees whether directly employed or otherwise as well as any workers in the supply chain. Management is vigilant to uphold such rights in all areas of operations. It is every employee’s responsibility to maintain a work environment that promotes human rights and is free from all discrimination and harassment. All levels of management throughout the Group have an open-door policy to encourage open communication with staff and where any workplace concerns are addressed efficiently.
The organisation believes that preventing discrimination and/or harassment is an integral part of good management. The Group has a discrimination and harassment policy detailing the procedures employees should follow in any case of discrimination or harassment.
Our mission statement clearly outlines our passion for entrepreneurship. As a Group we aim to not only develop our personnel to reach their potential professionally, but we also aim to embrace and push the entrepreneurial community in Malta. During the year, our Chairman, Mr Angelo Xuereb and our Chief Executive Officer, Mr Michael Warrington, attended a number of public speaking events whereby amongst other things they promoted the entrepreneurial spirit.
Health and Safety
Due to the nature of certain operations within the Group, health and safety measures are of utmost priority within our workplace. For this reason, we are constantly reviewing and improving our health and safety measures in all of our processes, to ensure that both our employees’, as well as our customers’ health and safety are safeguarded.
In relation to our employees, we continue to provide the safety equipment where necessary and ensure that health and safety measures and processes are made known to all staff. In addition to the mandatory health and safety officers on all construction sites, the Group has appointed an independent third party to prepare a high-level dashboard in order to keep executive management and Directors abreast of the health and safety status of all construction sites managed by the Group.
Regrettably, during the year there was a major incident involving an employee of a subcontractor working on one of the Group’s main development projects. The Directors confirm that all health and safety measures and procedures were in place and are pleased to confirm that the employee has since progressed well on his road to recovery. The Group is continually reviewing its health and safety practices to ensure best practices in managing risk and protecting employees.
AX Care
Another key business activity is the provision of Care for the elderly. We believe that through the Hilltop Gardens Retirement Village concept we are providing our elderly premium care within a safe, secure and comfortable environment, hence promoting active ageing and improving quality of life.
Through our “village within a village” concept in Naxxar, we provide our elderly a self-contained village environment enabling them to continue their day-to-day lives as normally as possible, through features such as pools, a chapel, a restaurant and other day-to-day amenities. Now that the COVID-19 pandemic restrictions have been fully lifted, we will continue to ensure that a sense of community is kindled within our village through further event organization.
Moreover, through our Simblija Home we offer tailor-made packages depending on the needs of our elderly, including respite, convalescence, and palliative treatments. Our facilities also include Revive, which is our physiotherapy and aquatic centre.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
16
Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION - continued
Social Matters - continued
AX Foundation and Other Community Initiatives
Outside of the Group, we also take great pride in our community investment initiatives and charitable initiatives. Since its inception, the AX Foundation has proactively identified gaps in the support services to affect change on a national level and help young people living with disabilities acquire functional skill sets to live as independently as possible throughout their adult lives. We have taken steps to contribute to national policymaking, driving social change, to create a more inclusive future for all. Last year marked the return of the annual AX Foundation gala night following a two-year absence in light of the COVID-19 pandemic. This special fundraising event raised over EUR17,000 in aid of the Foundation’s many efforts and initiatives in supporting people living with invisible disabilities. An exclusive art exhibition by Richard Xuereb was one of the main highlights of the event, whilst the AX Ability Award was awarded to Mr Jacob Callus, a young man on the autism spectrum who continues to advocate and campaign for support, inclusion and empowerment of persons living with autism.
During the year, the AX Group themed up with Fondazzjoni Sebh to give a fresh look to Dar San Nikola, a children’s residential home in Hamrun. Staff from all divisions supported this initiative by lending a hand on multiple Saturdays in October and November to refurbish the large hallway and give it a homey atmosphere.
Maltese Heritage
As a Group we value our local heritage and over the years we have taken up several renovation works across Malta, mainly on the bastions and in national museums. This is also outlined in the mission statement of AX Construction – “Building our future, restoring our heritage”. In 2022, we completed works on the restoration of the Senglea Bastions, the Gate, Belvedere and ‘Gardjola’ and the Malta Maritime Museum in Birgu. Works on the extension of the St. John Co Cathedral and the restoration of the Oratory of the Jesuits Church in Valletta are still ongoing. In 2020 the Group had acquired a dilapidated palazzo in Merchant Street Valletta with the aim of restoring it and convert the property to an office building. During the year, extensive restoration works have been completed and it is expected that this property will be launched in 2023 under the brand name ‘Palazzo Lucia’.
Moreover, we are also considering the possibility of creating specific cultural and gastronomic tours for tourists, providing them with an experience of the local tastes and lifestyle. These plans have been slowed down during the COVID-19 pandemic, but management is currently working to launch in the coming months.
Uphold Good Governance
As a large, listed company, AX Group has the necessary corporate governance structures in places. The Group’s internal auditor, who reports regularly to the Audit Committee, also ensures that all our internal controls are adhered to at all times.
Being one of the Group’s core values, AX Group is committed to comply with local legislation and has zero tolerance towards bribery and corruption.
We stand by a code of ethics reflecting the ethical ethos of the Group. This is applicable to all employees and board members. The code of ethics sets out the principles and necessary controls to mitigate against bribery and corruption. All Group policies and procedures are built to ensure that this is achieved and that high ethical standards are maintained at all times. We constantly remind our employees about the risks and obligations associated with bribery and corruption. Cognizant of the potential reputational damage, the Group has also set out procedures to ensure that its principal suppliers operate and comply with local legislation. AX Group is committed to uphold and enhance its policy against bribery and corruption. No instances of bribery or corruption were identified in the past year.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
17
Directors’ Report – continued
STATEMENT ON NON-FINANCIAL INFORMATION - continued
Uphold Good Governance - continued
The Governance of ESG and the Alliance
The Directors believe that for a business to thrive in the coming decades, it must work in harmony with its working environment. This harmony and the consequential positive financial performance and longevity can only be achieved by considering ESG aspects in the Group’s decision making.
AX Group understands that senior oversight and accountability for ESG initiatives is crucial to achieve a progressive ESG culture across the Group. Therefore, an ESG Committee has been established and is composed of individuals representing all areas of the business. The ESG Committee is responsible to establish an ESG framework, to identify, measure, analyse, monitor and document ESG elements across the Group.
In 2022, AX Group took a significant step forward in its ESG mission by joining forces with 12 other reputable business leaders to create the Malta ESG Alliance (MESGA). Together, this private sector consortium is actively working towards tackling local environmental, social and governance priorities to contribute to a more sustainable and less carbon-intensive Malta, with the first major aim to put forward a climate change initiative.
MESGA plans to achieve this both by adapting the way its members do business and operate, as well as through working closely with policy makers to improve the local regulatory landscape and motivate the flow of finance in this direction. MESGA aims to keep on attracting good-willed and committed small, medium and large companies to join forces and contribute to resilient, responsible business that supports a thriving community.
Moving forward, our Group remains adamant to be a catalyst in safeguarding the environment, whilst giving back to society and withholding the highest good governance processes. We acknowledge the ever-increasing importance of sustainability in businesses as well as the greater requests for Environment, Social and Governance data moving forward, from regulators, clients and investors alike.
We thereby commit to continue working on integrating ESG aspects within the overall strategy of the Group, including the necessary structures and skills to lead this transition. Moreover, we will ensure that the right level of ESG data is collected and verified periodically so that future measures and investments are well placed and conducive to improving our non-financial position along with our financial position. This will ensure that AX Group is not only a financially sound Group but also one which adds value to the community, whilst respecting the environment in which it operates in, in a just manner.
Signed on behalf of the Board of Directors on 27 February 2023 by Mr Angelo Xuereb and Mr Michael Warrington as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report 2022.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
18
Statement of Directors’ Responsibilities
The Directors are required by the Companies Act, Cap. 386 of the Laws of Malta to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the EU which give a true and fair view of the state of affairs of the Group and the Company at the end of each financial year and of the profit or loss of the Group and the Company for the year then ended. In preparing the financial statements, the Directors should:
-adopt the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business;
-select suitable accounting policies and apply them consistently;
-make judgements and estimates that are reasonable and prudent;
-account for income and charges relating to the accounting period on the accruals basis;
-value separately the components of asset and liability items; and
-report comparative figures corresponding to those of the preceding accounting period.
The Directors are responsible for ensuring that proper accounting records are kept which disclose with reasonable accuracy at any time the financial position of the Company and which enable the Directors to ensure that the financial statements comply with the Companies Act, Cap. 386 of the Laws of Malta. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. The Directors are also responsible for safeguarding the assets of the Group and the Company, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
19
Corporate Governance – Statement of Compliance
Pursuant to Capital Market Rule 5.97 issued by the Malta Financial Services Authority, the Company is hereby reporting on the extent of its adoption of “the Code of Principles of Good Corporate Governance” (the Code) previously established by the Malta Stock Exchange. The Board has reviewed its Corporate Governance practices and an explanation of how the Principles of Good Governance have been applied is contained in this report.
The Company acts as the ultimate holding company to the AX Group of companies and does not itself carry on any trading activities other than for the purpose of funding the Group as and when the demands of its business so requires, and accordingly is economically dependent on the subsidiaries.
Compliance
Although the adoption of the Code is not mandatory, the Board has considered the principles embodied in the Code and has noted the Code’s recommended practices aimed towards the fulfilment of these same principles. The Board has also taken into account the nature of the Company’s structure, business activities and operations and in the light of such considerations it has formulated the view that the Company was generally in compliance with the Code throughout the period.
The Board
The Board of Directors of AX Group p.l.c. (the Board) is currently made up of seven Directors, two of whom are independent from the Company or any related Group Company. Pursuant to generally accepted practices, as well as the Company’s Articles of Association, the appointment of Directors to the Board is reserved exclusively to the Company’s shareholders.
The present Directors are Mr Angelo Xuereb, Ms Denise Xuereb, Ms Claire Zammit Xuereb, Mr Josef Formosa Gauci, Mr Christopher Paris, Mr John Soler and Mr Michael Warrington. Messrs Formosa Gauci and Soler are independent non-executive directors.
In the opinion of the Board, the independent non-executive directors are free from significant business, family or other relationship with the Group, its shareholders or its management that would create a conflict of interest such as to impair their judgement.
Mr Angelo Xuereb has been appointed as Chairman of the Board and Mr Michael Warrington as the Chief Executive Officer of the Company.
The Board acknowledges its statutory mandate to conduct the administration and management of the Company. The Board’s functions are governed by Chapter 5 of the Capital Market Rules and the Code of Corporate Governance for Listed Entities.
The Board is also responsible for ensuring that the Company installs and operates effective internal control and management information systems and that it communicates effectively with the market.
The Board met seven times during the year under review. The Board has a formal schedule of matters reserved to it for decision. Directors receive board and committee papers 10 days in advance of meetings and have access to the advice and services of the Company Secretary. Directors may, in the furtherance of their duties, take independent professional advice on any matter at the Company’s expense.
The Company, due to its continuous oversight and communication with its shareholders, has not established a performance evaluation committee chaired by a non-executive Director in order to carry out a performance evaluation of its role.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
20
Corporate Governance – Statement of Compliance – continued
Audit Committee
The Committee is chaired by Mr John Soler, and its other members are Mr Josef Formosa Gauci and Mr Christopher Paris. Mr Josef Formosa Gauci is considered by the Board to be competent in accounting and auditing in terms of the Capital Market Rules. As described above, the majority of the audit committee members are independent non-executive directors.
The Company Secretary acts as secretary to the committee which also receives the assistance of the Group Chief Executive Officer, Mr Michael Warrington, the Chief Financial Officer, Mr Albert Bonello and the Group Internal Auditor, Ms Isabelle Spiteri.
The Audit Committee met four times during the year under review.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee (the “RemNom Committee”) is composed of Mr Josef Formosa Gauci (Chairperson), Mr Christopher Paris and Mr John Soler, the majority of which are independent non-executive Directors.
In its function as remuneration committee, the RemNom Committee is charged with the oversight of the remuneration policies implemented by the Group with respect to its senior management.
In its function as nominations committee, the RemNom Committee is charged with enhancing the quality of nominees to the Board and ensuring the integrity of the nominating process, and with proposing the remuneration package of Directors and senior executives of the Group.
The RemNom Committee met two times during the year under review.
Dealings by Directors and Senior Officers
Conscious of its responsibility for monitoring dealings by Directors and senior officers in the Company’s securities, the Board approved a Code of Conduct for Securities Transactions by Directors, Executives and Employees in compliance with Capital Market Rules 5.102 to 5.116. The code provides guidance to the Company’s officers and serves as a minimum standard of good practice when dealing in the Company’s securities.
During the year under review, there were no transactions in the Company’s securities involving Directors or any of the Company’s employees in possession of unpublished price-sensitive information.
Internal Control
The Board is ultimately responsible for the Company’s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve objectives, and can provide only reasonable, and not absolute, assurance against material misstatement or loss.
A policy is in place, laying down the minimum required reports that should be made available to the Board in order to keep it informed in a structured and systematic manner on the operational and financial performance of the Company.
Institutional Shareholders
The Company is privately held and has no institutional shareholders.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
21
Corporate Governance – Statement of Compliance – continued
Risk Identification
Management is responsible for the identification and evaluation of key risks applicable to their areas of business. Risks may be associated with a variety of internal or external sources including control breakdowns, disruption in information systems, competition, natural catastrophe and regulatory requirements.
The Board is responsible to review its risk management policies and strategies and oversee their implementation to ensure that identified operational risks are properly assessed and managed.
The Board determines the remuneration of the Directors. The Directors’ and senior executives’ annual remuneration for the financial year under review, as approved by the Board, amounted to EUR868,342. This is a fixed remuneration and there are no variable elements or share options included. For the purposes of clarity, although several Directors sit on various committees of the Company, such Directors did not receive extra remuneration for occupying such roles during the year under review.
The Company recognises the importance of maintaining a dialogue with its stakeholders to ensure that its strategies and performance are understood. The Company communicates with stakeholders by way of the Annual Report and Financial Statements and by publishing its results on a six-monthly basis during the year, and through company announcements to the market in general.
The Board has also implemented an Investor Relations Program, which aims at giving Bondholders rewards to be used within the Group to foster loyalty. This program, which is managed by AX Group p.l.c. executives, includes the issue of the AX Investors Loyalty Card and the periodic dissemination of the AX Group Newsletter.
Corporate Social Responsibility
The Company is conscious of its responsibility towards the society in which it operates. It promotes environmentally friendly measures such as the reduction in the Company’s carbon footprint as well as encourages its employees to lead a healthy and active lifestyle. More information on environmental, social and governance matters is found in the Statement of Non-Financial Information in the Directors’ Report.
Signed on behalf of the Board of Directors on 27 February 2023 by Mr Angelo Xuereb and Mr Michael Warrington as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report 2022.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
22
Statements of Profit or Loss and Other Comprehensive Income
The notes on pages 28 to 80 form an integral part of these financial statements.
Group
Company
Notes
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Revenue
8
6,280,049
10,848,440
Other operating income
9
11,882
42,708
Operating costs
13
(14,940,146 )
(17,324,155 )
(760,507)
(2,347,223)
Staff costs
10
(16,282,597 )
(11,702,298 )
(2,359,424)
(1,673,110)
Depreciation
17,19
(6,915,876 )
(6,814,538 )
(514,342)
(329,628)
Gain on revaluation of investment properties
18
-
1,532,855
Gain on disposal of investment in subsidiaries
20
-
-
-
46,017,445
Movement in fair value of financial asset
22
-
-
(631,500)
-
Loss on disposal of financial asset
-
-
(21,000)
-
___________
___________
___________
___________
Operating profit
2,005,158
54,091,487
Share of results of associates and joint ventures
21
-
-
Finance income
11
1,934,390
12,993
Finance costs
12
(4,208,709 )
(4,043,633 )
(3,468,880)
(2,389,604)
___________
___________
___________
___________
(Loss)/profit before taxation
(1,303,002 )
470,668
51,714,876
Taxation
15
470,859
1,377,123
___________
___________
___________
___________
(Loss)/profit for the year
(249,104 )
941,527
53,091,999
___________
___________
___________
___________
Attributable to:
Owners of the parent
Non-controlling interest
(261,824 )
___________
___________
(249,104 )
___________
___________
Basic (loss)/earnings per share
16
(0.21 )
Other comprehensive income
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods
(Loss)/gain on property revaluations
17
(3,587,403 )
-
-
Taxation
15
-
-
____________
____________
___________
___________
Other comprehensive (loss)/income net of tax
(1,531,998 )
-
-
___________
___________
___________
___________
Total comprehensive (loss)/income
(1,781,102 )
941,527
53,091,999
____________
____________
___________
___________
Attributable to:
Owners of the parent
(1,519,278 )
Non-controlling interest
(261,824 )
___________
___________
Total comprehensive (loss)/income
(1,781,102 )
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
23
Statements of Financial Position
Group
Company
2022
2021
2022
2021
Notes
EUR
EUR
EUR
EUR
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
17
1,126,545
1,298,248
Investment properties
18
9,552,294
5,250,000
Right-of-use assets
19
-
-
5,129,916
4,945,553
Inventories
23
2,416,665
-
Investment in subsidiaries
20
-
-
82,054,477
30,461,427
Investments in associates and joint ventures
21
-
-
Loans receivable
22
38,801,076
113,797,663
Financial assets
22
-
-
20,488,900
-
___________
___________
___________
___________
159,569,873
155,752,891
___________
___________
___________
___________
Current assets
Inventories
23
762,466
762,466
Trade and other receivables
24
12,121,650
10,231,282
Current tax asset
2,223,190
644,270
Cash at bank and in hand
25
146,931
25,683
___________
___________
___________
___________
15,254,237
11,663,701
___________
___________
___________
___________
Investment property held for sale
18
-
4,286,418
___________
___________
___________
___________
Total assets
174,824,110
171,703,010
___________
___________
___________
___________
Current liabilities
Trade and other payables
27
3,186,570
2,987,024
Bank borrowings
28
-
1,142
Other financial liabilities
29
31,352,449
29,311,407
Debt securities in issue
30
744,349
746,712
Current lease liabilities
19
-
-
155,364
140,907
___________
___________
___________
___________
35,438,732
33,187,192
___________
___________
___________
___________
Non-current liabilities
Trade and other payables
27
58,539
128,788
Bank borrowings
28
-
-
Other financial liabilities
29
-
-
29,934,923
30,021,228
Debt securities in issue
30
24,736,174
24,689,873
Non-current lease liabilities
19
-
-
5,166,536
4,869,126
Deferred tax liabilities
31
243,375
502,499
___________
___________
___________
___________
60,139,547
60,211,514
___________
___________
___________
___________
Total liabilities
95,578,279
93,398,706
___________
___________
___________
___________
Net assets
79,245,831
78,304,304
___________
___________
____________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
24
Statements of Financial Position – continued
Group
Company
2022
2021
2022
2021
Notes
EUR
EUR
EUR
EUR
EQUITY
Capital and reserves
Share capital
32
1,164,688
1,164,688
Revaluation reserve
32
4,392,929
4,392,929
Other reserves
32
285,342
285,342
Retained earnings
32
73,402,872
72,461,345
___________
___________
___________
___________
79,245,831
78,304,304
___________
___________
___________
___________
Non-controlling interest
-
-
___________
___________
___________
___________
Total equity
79,245,831
78,304,304
___________
___________
___________
___________
The notes on pages 28 to 80 form an integral part of these financial statements.
The financial statements on pages 22 to 80 have been authorized for issue by the Board of Directors on 27 February 2023 and were signed on its behalf by Mr Angelo Xuereb and Mr Michael Warrington as per Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Report 2022.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
25
Statements of Changes in Equity
GROUP
Attributable to
equity
Non-
Share
Revaluation
Other
Retained
holders of
controlling
capital
reserve
reserves
earnings
the parent
interest
Total
EUR
EUR
EUR
EUR
EUR
EUR
EUR
At 31 October 2020
Profit for the year
Other comprehensive income for the year, net of tax
___________
___________
___________
___________
___________
___________
___________
Total comprehensive income for the year
Loss of control of a subsidiary
(403,858 )
(403,858 )
Fair value movement of investment properties, net of tax
(5,364,365 )
___________
___________
___________
___________
___________
___________
___________
At 31 October 2021
Profit/(loss) for the year
(261,824 )
(249,104 )
Other comprehensive loss for the year, net of tax
(1,531,998 )
(1,531,998 )
(1,531,998 )
___________
______________________
___________
___________
___________
___________
___________
Total comprehensive loss for the year
(1,531,998 )
(1,519,278 )
(261,824 )
(1,781,102 )
Loss of shareholding of a subsidiary
Dividends
(304,208 )
(304,208 )
Fair value movement of investment properties, net of tax
(919,531 )
___________
___________
___________
______________________
___________
___________
___________
At 31 October 2022
___________________________
___________
___________
___________
___________
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
26
Statements of Changes in Equity – continued
The notes on pages 28 to 80 form an integral part of these financial statements.
COMPANY
Share
Revaluation
Other
Retained
capital
reserve
reserve
earnings
Total
EUR
EUR
EUR
EUR
EUR
At 31 October 2020
1,164,688
-
-
1,397,046
2,561,734
Profit for the year
-
-
-
53,091,999
53,091,999
_________
_________
_________
_________
_________
Total comprehensive income for the year
-
-
-
53,091,999
53,091,999
Fair value movement of investment properties, net of tax
-
1,410,226
-
(1,410,226)
-
Effect of merger (Note 3)
-
2,982,703
285,342
19,382,526
22,650,571
___________
_________
_________
___________
___________
At 31 October 2021
1,164,688
4,392,929
285,342
72,461,345
78,304,304
Profit for the year
-
-
-
941,527
941,527
___________
_________
_________
___________
___________
Total comprehensive income for the year
-
-
-
941,527
941,527
___________
_________
_________
___________
___________
At 31 October 2022
1,164,688
4,392,929
285,342
73,402,872
79,245,831
___________
__________
_________
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
27
Statements of Cashflows
Group
Company
2022
2021
2022
2021
Notes
EUR
EUR
EUR
EUR
Cash flows from operating activities
(Loss)/profit before taxation
(1,303,002 )
470,668
51,714,876
Adjustments for:
Depreciation
17,19
514,342
329,628
Impairment of property, plant and equipment
17
-
-
Dividend declared
8
-
-
-
(10,110,769)
Share of results of associates and joint ventures
21
(848,954 )
(541,268 )
-
-
Movement in fair value of investment properties
18
(1,669,149 )
(4,964,812 )
-
(1,532,855)
Gain on disposal of investment in subsidiaries
20
-
-
-
(46,017,445)
Movement in fair value of financial asset
22
-
-
631,500
-
Loss on disposal of financial asset
-
-
21,000
-
Movement in expected credit loss
13
(142,722)
121,896
Issue cost amortization
12
46,301
27,659
Interest expense
12
3,422,579
2,361,945
Interest income
11
(83,234 )
(28,058 )
(1,934,390)
(12,993)
___________
___________
___________
___________
Operating profit/(loss) before working capital changes
3,029,278
(3,118,058)
Movement in inventories
18,23
(13,795,923 )
(2,416,665)
-
Movement in trade and other receivables
(3,117,759 )
(2,459,637 )
(3,027,070)
(2,376,909)
Movement in trade and other payables
(158,423)
8,850,749
___________
___________
___________
___________
Cash flows (used in)/from operating activities
(1,495,489 )
(2,572,880)
3,355,782
Interest paid
(3,459,466 )
(3,900,262 )
(860,137)
(2,241,292)
Interest received
11
32,693
12,993
Taxation credit received/(paid)
(188,052 )
-
-
_________
_________
_________
_________
Net cash flows (used in)/from operating activities
(4,489,148 )
(3,400,324)
1,127,483
_________
_________
_________
_________
Cash flows from investing activities
Purchase of property, plant and equipment and movement in capital creditors
(31,326,395 )
(4,909,990 )
(76,595)
(925,023)
Payments to acquire investment properties
(1,036,146 )
(1,814,934 )
(15,876)
(23,485)
Acquisition of financial assets
-
-
-
(48,800)
Disposal of financial assets
-
-
504,000
-
Movement in loan to subsidiary
-
-
3,485,768
-
___________
___________
___________
___________
Net cash flows (used in)/from investing activities
(32,362,541 )
(6,724,924 )
3,897,297
(997,308)
___________
___________
___________
___________
Cash flows from financing activities
Movement in a new bank loan
-
-
Movement on other loans
(32,691 )
(1,354,620 )
-
-
Proceeds from issue of shares
-
Proceeds from debt securities in issue
-
-
Payment of lease liabilities
19
-
-
(374,583)
(263,333)
Dividends to non-controlling interest
(304,208 )
-
-
___________
___________
___________
___________
Net cash flows from/(used in) financing activities
(374,583)
(263,333)
___________
___________
___________
___________
Net movement in cash and cash equivalents
122,390
(133,158)
Cash and cash equivalents at beginning of year
(166,501 )
24,541
157,699
___________
___________
___________
___________
Cash and cash equivalents at end of year
25
146,931
24,541
___________
___________
___________
___________
The notes on pages 28 to 80 form an integral part of these financial statements
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
28
Notes to the Financial Statements AX Group p.l.c. public limited liability company incorporated in Malta . The Company is the parent company of the Group, which is mainly involved in the provision of hospitality and entertainment services, healthcare services, construction and property development. The Company’s registered office is at AX Group, AX Business Centre, Triq id-Difiza Civili, Mosta, MST 1741, Malta.
1.GENERAL INFORMATION
2.BASIS OF PREPARATION
The financial statements have been prepared in accordance with the requirements of the International Financial Reporting Standards (IFRSs) as adopted by the EU and the requirements of the Companies Act, Cap. 386 of the Laws of Malta.
The financial statements have been prepared on a historical cost basis, except for investment properties (Note 18), land and buildings (Note 17) and investment in debt securities (Note 22) which are stated at fair value.
The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of certain accounting estimates. It also requires the Directors to exercise their judgement in the process of applying the Group and the Company’s accounting policies. Significant accounting policies are disclosed in Note 5 and accounting estimates are disclosed in Note 6 to these financial statements.
These financial statements are presented in Euro (EUR) which is the Group and the Company’s functional currency. The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
2.1Going concern
As at 31 October 2022, the Company’s current liabilities exceeded its current assets by EUR20,184,495 (2021: EUR21,523,491). Given the nature of the Company and its function within the Group, of which it is the ultimate parent company, the Company is dependent on the Group for financial support.
As at 31 October 2022, the Group’s current assets exceeded its current liabilities by EUR4,195,966 (2021: current liabilities exceeded its current assets by EUR1,981,754) whereas the Group’s total assets exceeded its total liabilities by EUR248,222,647 (2021: EUR237,142,681). The working capital position at 31 October 2022 includes a balance of EUR1,670,284 (2021: EUR1,488,203) that represents deferred income which does not have an impact on the Group’s liquidity.
As described below, management has prepared a cashflow forecast for the AX Group and has concluded that as a result of the strength of the Group’s financial position and performance and availability of financing, the AX Group will be able to sustain its operations over the foreseeable future in a manner that is cash flow positive.
Accordingly, based on information available at the time of approving these financial statements, the Directors have reasonable expectation that the Group and the Company will meet all their obligations as and when they fall due over the foreseeable future and therefore, that the going concern basis adopted for the preparation of these consolidated and separate financial statements is appropriate.
Profitability
During 2022, the Group experienced an increase in revenue of 8.1% over 2021 and has reported Adjusted EBITDA
of EUR7,220,246 (2021: EUR6,779,181) which reconciles to the Group’s operating profit/(loss) after adjusting for gain/(loss) on revaluation of investment properties, gain/(loss) on disposal of investment in subsidiaries, gain/(loss) on disposal of financial asset and depreciation on the Statement of Profit or Loss. This was achieved despite the fact that the Suncrest hotel was closed throughout the full year and that in the prior year, the Group generated EUR8million in revenue from sale of property compared to EUR1million during this year. This result is attributable to several factors:
a.Improved market confidence
Following the relaxation of the COVID-19 related restrictions and the eventual removal of such restrictions both locally and across most of Europe, the hospitality segment experienced an increase in demand for its services over the summer and autumn months. A similar surge has been noted in our catering establishments with more people frequenting such outlets when compared to the previous year. The healthcare segment has also experienced an improved occupancy with the Simblija Care Home achieving and exceeding pre-Covid occupancy levels by the end of the year.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
29
Notes to the Financial Statements – continued
2.BASIS OF PREPARATION - continued
2.1Going concern - continued
Profitability – continued
b.Internal operating structures
During the past years, management decided to reorganise and centralise various administrative functions within the Group. This strategy, which has now been successfully extended to the Finance, Human Resources and Sales & Marketing departments, is giving the desired results with cost efficiencies being realized across these administrative functions. In addition, during the current financial year, management has fared well in controlling direct costs amid an inflationary increase in prices across all divisions.
c.Government support
A key element supporting the ability to operate during months impacted by COVID-19 restrictions was once again the Government wage supplement which has been extended until end of May 2022. During the year the Group received EUR1,484,865 (2021: EUR2,318,830) in assistance from the Malta Enterprise under the Wage Supplement Scheme as disclosed in Note 10.
Liquidity and Capital Funding
During the year, management took various steps to retain a high level of liquidity in line with the Group’s policy. As at reporting date, the Group had aggregate banking facilities of EUR38,999,638 (31 October 2021: EUR27,412,974) of which EUR4,237,192 (31 October 2021: EUR6,011,835) were undrawn banking facilities. During the financial year, the Group has availed itself of various bank loan repayment moratoriums with its’ bankers.
In 2021, the Group obtained a full development permit for the redevelopment of the Verdala site in Rabat, and another full development permit for the extension of the Suncrest Hotel in Qawra. Construction works on both projects commenced during 2021 and continued throughout 2022. During 2022, the Group also obtained the full development permit for the full redevelopment of the Suncrest lido in Qawra.
In order to part finance the Suncrest and Verdala Hotel developments, during the prior year the Group went through a reorganisation exercise, with the ultimate aim of consolidating the main property letting activities of the Group into one newly formed division under AX Real Estate p.l.c.
In January 2022, the Group obtained a EUR15million bridge loan from a local bank to part finance the Suncrest hotel extension and the Verdala hotel development.
In February 2022, AX Group successfully listed AX Real Estate p.l.c. on the Malta Stock Exchange, with 25% of the ordinary A shares being taken up by the general public. Through this transaction, AX Real Estate p.l.c. raised EUR13,645,644. In conjunction with the share issue, AX Real Estate p.l.c. also issued EUR40million unsecured bonds redeemable in 2032. The general public subscribed to EUR18,354,600 bonds whilst the remaining EUR21,645,400 bonds were allocated by AX Real Estate p.l.c. to the Company through the part conversion of the existing intra-group loan with AX Real Estate p.l.c. It is the intention of the Company to dispose of the allocated bonds at the opportune time to ascertain sufficient liquidity for the Suncrest and Verdala hotel developments.
As at 31 October 2022, the Group had a gearing ratio of 37.5% which is expected to increase following the drawdown of the below mentioned banking facilities approved subsequent to reporting date and potential future bond issues. The drawdown from these loan facilities is expected to occur over a number of months.
Subsequent to year end, the Group has secured a loan facility from a local credit institution to the amount of EUR48.5million, for the purpose of financing the completion of the Suncrest Hotel development, including the lido redevelopment. This facility is expected to be drawn down throughout 2023 and 2024 and will be repaid within 15 years with a 12-month moratorium period on capital repayments.
The Group also obtained another loan facility from a local credit institution amounting to EUR36million which has been provided to enable the Group to develop and finish the Verdala Terraces project in Rabat. The loan facility bears interest of 4.66% p.a. and the outstanding loan amounts are repayable within 7 years from the date of the first drawdown. Principal repayments are to be settled out of the proceeds from sale of units of the Verdala Terraces project. It is projected that sales from the Verdala Terraces will start to flow during 2024 of which 75% will go towards loan repayment, thereby decreasing the Group debt.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
30
Notes to the Financial Statements – continued
2.BASIS OF PREPARATION - continued
2.1Going concern - continued
Liquidity & Capital Funding – continued
Furthermore, as described below, management’s forecast is based on the assumption that on 6 March 2024, being the bond’s redemption date, the bond will be repaid or rolled over. Such repayment is dependent on the Group’s ability to raise further liquidity. As a result, management is considering alternative financing options, including the issuance of a new bond by AX Group p.l.c., with the proceeds therefrom committed to be advanced to AX Investments p.l.c.
Cashflow Forecast
Management has prepared a cashflow forecast considering significant events and transactions that have occurred or are expected to occur subsequent to year end. The base case scenario contemplates further recovery from the COVID-19 pandemic within the hospitality sector, which is forecasted to reach pre-COVID operating levels during 2023, as well as the reopening of the Suncrest Hotel in May 2023. On the other hand, the Group’s construction and healthcare sectors are forecasted to operate in line with 2022 levels. Furthermore, the cashflow forecast cautiously reflects the impact of inflationary pressures on the operating costs of the Group. The cashflow forecast also reflects capital expenditure on the Suncrest and Verdala projects and their respective financing, as explained above, together with the development of a limited number of projects that the Group considers to be key to its long-term strategy. Management also considered current and projected debt, including debt at variable rates.
Management’s forecast is based on the assumption that upon its redemption date being 6 March 2024, the 6% AX Investments p.l.c. 2024 bond will be repaid or rolled over. As discussed in Note 30, such repayment is dependent on the Group’s ability to raise further liquidity. As a result, management is considering alternative financing options, including the issuance of a new bond by AX Group p.l.c., with the proceeds therefrom committed to be advanced to AX Investments p.l.c. in line with the parent company guarantee provided by the Company in terms of the current bond’s offering memorandum.
Furthermore, management has also simulated a worst-case scenario wherein the Suncrest Hotel’s projected performance following re-opening is reduced by 20%. This sensitivity scenario is being considered as a stress test case to assess the Group’s resilience and ability to handle unforeseen challenges. With the contingency plans in place, management is confident that the Group will continue to have sufficient liquidity to operate in the foreseeable future.
Contingency plans have been identified to address potential challenges and ensure the Group’s continued success. Should it be necessary, the Group can generate further liquidity by disposing of the 3.5% AX Real Estate p.l.c. 2032 bonds held by the Company. Management also notes that a number of the Group’s properties are unencumbered and could potentially be used as a guarantee in obtaining additional financing from banks should the need arises. Additionally, the Group has earmarked some non-core immovable property that can be disposed of.
3.LEGAL MERGER
On 10 June 2020 the board of Directors of AX Holdings Limited, a company registered in Malta and the board of Directors of the Company, approved a Draft Terms of Merger, whereby AX Holdings Limited (“the company being acquired”) was amalgamated into the Company. The merger became effective on the 24 March 2021, on which date AX Holdings Limited was struck off from the Malta Business Registry. The Draft Terms of Merger stipulated that the transactions of the company being acquired are accounted for in the annual accounts of the Company as from the effective date, this being in line to the provisions of Article 358 of the Companies Act, Cap. 386 of the Laws of Malta.
Prior to the merger, the Company owned 100% of the ordinary shares in issue of AX Holdings Limited. The main business activity of AX Holdings Limited was that of an intermediate holding company of the Group. As a result of the legal merger, AX Holdings Limited transferred all its activities to the Company and ceased to operate.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
31
Notes to the Financial Statements – continued
No cash payment was made; the legal merger is in substance the redemption by AX Group p.l.c. of shares in AX Holdings Limited, in exchange for the assets of AX Holdings Limited. The assets acquired and liabilities assumed are recognised at the carrying amounts in the consolidated financial statements as of the date of the legal merger, are disclosed below:
AX Holdings Limited
24 March 2021
EUR
ASSETS
Non-current assets
Property, plant and equipment
4,652,359
Investment properties
4,550,000
Investment in subsidiaries and associates
71,071,612
Total non-current assets
80,273,971
Current assets
Inventories
12,466
Trade and other receivables
21,561,363
Current tax assets
644,380
Cash and cash equivalents
8,890
Total current assets
22,227,099
TOTAL ASSETS
102,501,070
LIABILITIES
Current liabilities
Trade and other payables
615,040
Other financial liabilities
27,694,375
Total current liabilities
28,309,415
Non-current liabilities
Other financial liabilities
50,758,274
Deferred tax liabilities
806,223
Total non-current liabilities
51,564,497
TOTAL LIABILITIES
79,873,912
EQUITY
Revaluation reserve
2,982,703
Other reserve
285,342
Retained earnings
19,359,113
TOTAL EQUITY
22,627,158
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
32
Notes to the Financial Statements – continued
4.BASIS OF CONSOLIDATION
Subsidiaries are those companies in which the Group, directly or indirectly, has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.
The consolidated financial statements comprise the financial statements of AX Group p.l.c. (“the Company”) and its subsidiaries (“the Group”) as at 31 October 2022. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if, and only if, the Group has:
-Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)
-Exposure, or rights, to variable returns from its involvement with the investee
-The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
-The contractual arrangement(s) with the other vote holders of the investee
-Rights arising from other contractual arrangements
-The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
33
Notes to the Financial Statements – continued
4.BASIS OF CONSOLIDATION – continued
These consolidated financial statements comprise the Company and its subsidiaries, namely:
Group % of equity
and voting rights held
2022
2021
AX Construction Limited
100
100
AX Contracting Limited
100
100
AX Finance Limited
100
100
AX Hotel Operations p.l.c.
100
100
AX Investments p.l.c.
100
100
AX Port Holding Company Limited
100
100
AX Port Investments Company Limited
100
100
Capua Palace Investments Limited
100
100
Central Leisure Developments Limited *
100
100
Harbour Connections Limited
100
100
Hardrocks Estates Limited **
50
50
Heritage Developments Limited *
100
100
Hilltop Gardens Retirement Village Limited
100
100
Hilltop Management Services Limited
100
100
Holiday Resorts Limited * (merged into Suncrest Hotels p.l.c.)
-
100
AX Business Park Limited
100
100
Palazzo Merkanti Leisure Limited *
100
100
Prime Buildings Limited
75
75
Renewables Limited
100
100
Royal Hotels Limited *
100
100
Simblija Developments Limited *
100
100
Skyline Developments Limited *
100
100
St. John’s Boutique Hotel Limited *
100
100
Suncrest Hotels p.l.c.*
100
100
Palazzo Lucia Limited (formerly The Waterfront Entertainment Venture Ltd)
100
100
Verdala Mansions Limited
100
100
AX Real Estate p.l.c. (formerly AX Real Estate Limited)***
91.13
100
Engage People Limited
100
100
Verdala Terraces Limited
100
100
* AX Group p.l.c. being the ultimate parent company of these entities through direct ownership of their immediate parent, AX Real Estates p.l.c.
** The investment in Hardrocks Estates Limited is accounted as an investment in a joint venture as from 9 September 2021, following the sale of 1% interest in the company. Following this sale, the shareholders of Hardrocks Estates Limited hold equal voting rights and rights for return.
*** In February 2022, AX Group p.l.c. managed to successfully list AX Real Estate p.l.c. (formerly AX Real Estate Limited) on the Malta Stock Exchange, with 25% of the ordinary A shares being taken up by the general public. Through this transaction, the Company raised EUR13,648,644. This balance net of issue costs is reflected in the non-controlling interest in equity.
The registered address of all subsidiaries is AX Group, AX Business Centre, Triq id-Difiza Civili, Mosta MST 1741, Malta.
The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
AX GROUP P.L.C.
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Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied in the financial statements presented, unless otherwise stated.
5.1Standards, interpretations and amendments to published standards endorsed by the European Union effective in the current year
The accounting policies adopted are consistent with those of the previous financial year, except for the following amendments to IFRS effective during the year:
-Amendments to IFRS 16 Leases: COVID-19- Related Rent Concessions beyond 30 June 2021 (issued on 31 March 2021)
-Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 (issued on 27 August 2020)
-Amendments to IFRS 4 Insurance Contracts – deferral of IFRS19 (issued on 25 June 2020)
These amendments and interpretations do not have an impact on the financial statements of the Group. The Group has not early adopted any standard, interpretations or amendments that have been issued but are not yet effective.
5.2Standards, interpretations and amendments to published standards as adopted by the EU which are not yet effective
Up to date of approval of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but which are not yet effective for the current reporting year and which the Group has not early adopted but plans to adopt upon their effective date. The new and amended standards follow:
-Amendments to IFRS 17 Insurance Contracts: Initial Application of IFRS 17 and IFRS 9 – Comparative Information (issued on 9 December 2021) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (issued on 7 May 2021) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (issued on 12 February 2021) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (issued on 12 February 2021) (effective for financial year beginning on or after 1 January 2023)
-IFRS 17 Insurance Contracts (issued on 18 May 2017); including Amendments to IFRS 17 (issued on 25 June 2020) (effective for financial year beginning on or after 1 January 2023)
-Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and Annual Improvements 2018-2020 (All issued 14 May 2020) (effective for financial year beginning on or after 1 January 2022)
The changes resulting from these standards, interpretations and amendments are not expected to have a material effect on the financial statements of the Group.
5.3Standards, interpretations and amendments that are not yet endorsed by the European Union
These are as follows:
-Amendments to IAS 1 Presentation of Financial Statements:
i.Classification of Liabilities as Current or Non-current (issued on 23 January 2020)
ii.Classification of Liabilities as Current or Non-current – Deferral of Effective Date (issued on 15 July 2020); and
iii.Non-current Liabilities with Covenants (issued on 31 October 2022)
-Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback (issued on 22 September 2022)
The Group is still assessing the impact that these new standards will have on the financial statements.
AX GROUP P.L.C.
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Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.4 Revenue from contracts with customers
Revenue includes all revenues from the ordinary business activities of the Group and is recorded net of value added tax. Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when (or as) it satisfies a performance obligation by transferring control of a promised good or service to the customer. The Group has generally concluded that it is the principal in its revenue arrangements.
The Group recognises revenue from the following major sources:
i.Sale of goods
ii.Provision of hospitality services primarily accommodation in hotels and boutique properties and catering services offered by the Group outlets and provision of accommodation services within a retirement home, independent living facilities and other ancillary services
iii.Construction, turnkey and restoration works of residential, commercial and industrial properties
iv.Rental income
v.Sale of inventory property – completed property and property under development
i.Sale of goods
The Group, through its subsidiaries, sells food and beverage products and healthcare items directly to customers through its own outlets. Revenue is recognised when control of the goods has transferred, being at the point the customer purchases the goods at the outlet or property. Customers do not have the right of return and no warranties are given on the items sold.
ii.Provision of services - Hospitality and healthcare
The Group, through various subsidiaries, provides hospitality and healthcare services.
Revenue from hospitality includes revenue from accommodation, foods and beverage services and other ancillary services. Each of the services rendered is recognised at a point in time when transferring control of the contracted service to the customer.
Revenue from health care services includes revenue recognised over time on a systematic basis based on the period consumed as a proportion of the total contractual period for: (i) revenue from Hilltop Gardens Retirement Village consisting of revenue from self-catering apartments and penthouses that are occupied by tenants for definite periods and (ii) revenue from Simblija Care Home consisting of revenue from stays for short term respite care, convalescence and post-operative recovery and intensive nursing care to the more dependent elderly residents; and revenue recognised at a point in time when transferring control of the contracted service to the customer – related to ancillary services provided at Simblija Care Home and other amenities.
iii.Provision of services – Construction
The Group provides construction related works to its customers. Revenue from construction works is recognised over time, based on the proportion of works performed to date. The Directors consider that this input method is an appropriate measure of the progress towards complete satisfaction of these performance obligations under IFRS15. The Group becomes entitled to invoice customers for construction works, when a third-party assessor signs off a certificate confirming the achievement of a milestone.
iv.Rental income
The Group earns revenue from acting as a lessor in operating leases which do not transfer substantially all of the risks and rewards incidental to ownership of investment properties. Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease term and is included in revenue in the statement of profit or loss due to its operating nature, except for contingent rental income which is recognised when it arises. Initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income.
AX GROUP P.L.C.
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Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.4 Revenue from contracts with customers - continued
v.Sale of inventory property – completed property and property under development
The sale of completed property constitutes a single performance obligation and the Group has determined that this is satisfied at the point in time when control transfers. For unconditional exchange of contracts, this generally occurs when legal title transfers to the customer. For conditional exchanges, this generally occurs when all significant conditions are satisfied. Payments are received when legal title transfers.
5.5 Employee benefits
The Group contributes towards the state pension in accordance with local legislation. The only obligation of the Group is to make the required contributions. Costs are expensed in the period in which they are incurred.
5.6 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised from the time that expenditure for these assets and borrowing costs are being incurred and activities that are necessary to prepare these assets for their intended use or sale are in progress. Borrowing costs are capitalised until such time as the assets are substantially ready for their intended use or sale. Other borrowing costs are recognised as an expense in the profit and loss in the period in which they are incurred.
5.7Leases
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Company as a lessee
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognises lease liabilities to make lease payments and right-of use assets representing the right to use the underlying assets.
i.Right-of-use assets
The Company recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use, initial direct costs incurred, and lease payments made at or before the commencement date less assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:
Offices-20 years
Warehouse-20 years
If ownership of the leased asset is transferred to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment.
AX GROUP P.L.C.
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Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.7Leases - continued
ii.Lease liabilities
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
The Company’s lease liabilities are detailed in Note 19.
Group as lessor
Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss and other comprehensive income due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income.
5.8 Government Grants
Government grants are recognised where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate are expensed. When the grant relates to an asset, it is initially recognised as deferred income and subsequently recognised as income in equal amounts over the expected useful life of the related asset.
5.9Taxation
i.Current income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted at the reporting date in the country where the Group operates and generates taxable income.
Current income tax is charged or credited to profit or loss. Current income tax relating to items realized directly in equity is realized in equity and not in the statement of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
The charge for current tax is based on the taxable result for the period. The taxable result for the period differs from the result as reported in profit or loss because it excludes items which are non-assessable or disallowed and it further excludes items that are taxable or deductible in other periods.
AX GROUP P.L.C.
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5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.9Taxation - continued
ii.Deferred income tax
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax liabilities are realized for all taxable temporary differences and deferred tax assets are realized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be realized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to settle its current tax assets and liabilities on a net basis.
5.10Fair value measurement
The Group and the Company measure non-financial assets such as investment properties and financial assets such as investment in debt securities in issue at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
-In the principal market for the asset or liability, or
-In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
-Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities
-Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
-Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
AX GROUP P.L.C.
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Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.11Investment in subsidiaries
Subsidiaries are all entities over which the investor has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.
Company
Investments in subsidiaries are initially recognized at cost, being the fair value of the consideration given, including acquisition charges associated with the investment. Subsequent to initial recognition, the investments are measured at cost less any accumulated impairment losses.
5.12Investment in associates and joint ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decision of the investee but is not control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
Group
The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group’s investment in its associate and joint venture are accounted for using the equity method.
Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment separately. The statement of profit or loss reflects the Group’s share of the results of operations of the associate or joint venture after adjustments to align the accounting policies of the Group, from the date that significant influence commences until the year-ended 31 October 2022.
The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Groups’ share of losses in an associated undertaking equal or exceeds its interest in the associated undertaking, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associated undertaking. The use of the equity method should cease from the date that significant influence ceases.
After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognizes the loss within “Share of profit of associates and joint ventures” in the statement of profit or loss.
Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.
Company
Investments in associates and joint ventures are initially recognized at cost. The Company subsequently measures the investments in associates and joint ventures at cost less any accumulated impairment losses.
AX GROUP P.L.C.
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Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.13Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
i.Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
i.Financial assets at amortised cost (debt instruments)
ii.Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
iii.Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)
iv.Financial assets at fair value through profit or loss
Financial assets at amortised cost (debt instruments)
Financial assets at amortised cost (debt instruments) are the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met:
-The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
-The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group’s debt instruments at amortised cost includes loans and receivables, trade and other receivables and cash and cash equivalents.
AX GROUP P.L.C.
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Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.13Financial instruments – continued
i.Financial assets – continued
Subsequent measurement – continued
Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
The Group measures debt instruments at fair value through OCI if both of the following conditions are met:
-The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and
-The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
The Group holds no financial assets in this category.
Financial assets at fair value through OCI (equity instruments)
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
Financial assets at fair value through profit or loss
Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are measured at fair value through profit or loss (FVTPL). Specifically:
-Investments in equity instruments are classified as at FVTPL. However, a company may designate an equity investment that is neither held for trading nor a contingent consideration arising from a business combination as at FVTOCI on initial recognition.
-Debt instruments that do not meet the amortised cost criteria or the FVTOCI criteria are classified as at FVTPL.
In addition, debt instruments that meet either the amortised cost criteria or the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.
Financial assets measured at FVTPL are subsequently measured at fair value at the end of each reporting period, with any fair value gains or losses including foreign exchange gains and losses, recognised in profit or loss.
Where applicable, dividend income is recognised with other dividend income, if any, arising on other financial assets within the line item ‘Investment income’. Where applicable, interest income is disclosed within the line item ‘Investment income’. Fair value gains and losses are recognised within the line items ‘Investment income’ and ‘Investment losses’ respectively.
The Company holds investment in debt securities which falls in this category.
AX GROUP P.L.C.
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Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.13Financial instruments – continued
i.Financial assets – continued
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised when:
-The rights to receive cash flows from the asset have expired, or
-The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement.
ii.Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Group’s financial liabilities include loans and borrowings and trade and other payables.
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified in two categories:
-Financial liabilities at fair value through profit or loss
-Financial liabilities at amortised cost (loans and borrowings)
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the statement of profit or loss. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Group has not designated any financial liability as at fair value through profit or loss.
AX GROUP P.L.C.
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Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.13Financial instruments – continued
ii.Financial Liabilities – continued
Subsequent measurement – continued
Financial liabilities at amortised cost (loans and borrowings)
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.
iii.Impairment of financial assets
The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
General approach
Under the general approach, the Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition rather than on evidence of a financial asset being credit-impaired at the reporting date or an actual default occurring.
Lifetime ECL represents the ECLs that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.
AX GROUP P.L.C.
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Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.13Financial instruments – continued
iii.Impairment of financial assets – continued
General approach – continued
The 12-month ECL is calculated by multiplying the 12-month Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD). Lifetime ECL is calculated on a similar basis for the residual life of the exposure.
The Group considers a financial asset to be in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
For financial assets for which the Group has no reasonable expectations of recovering either the entire outstanding amount, or a proportion thereof, the gross carrying amount of the financial asset is impaired.
Simplified approach
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
iv.Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
5.14Impairment of non-financial assets
All other assets are tested for impairment in terms of this accounting policy except for inventory and investment properties measured at fair value.
At the end of each reporting period, the carrying amount of assets, including cash-generating units, is reviewed to determine whether there is any indication or objective evidence of impairment, as appropriate, and if any such indication or objective evidence exists, the recoverable amount of the asset is estimated.
An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of fair value (which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date) less costs of disposal and value in use (which is the present value of the future cash flows expected to be derived, discounted using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset). Where the recoverable amount is less than the carrying amount, the carrying amount of the asset is reduced to its recoverable amount, as calculated.
Impairment losses are recognised immediately in profit or loss, unless the asset is carried at a revalued amount, in which case, the impairment loss is recognised in other comprehensive income to the extent that the impairment loss does not exceed the amount in the revaluation surplus for that asset.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been recognised.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
45
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.15Property, plant, and equipment
Property, plant, and equipment other than land and buildings are initially recorded at cost. These are subsequently stated at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes purchase price and any directly attributable cost of preparing the asset for its intended use.
Property, plant, and equipment are derecognised on disposal or when no future economic benefits are expected from their use or disposal. Gains or losses arising from derecognition represent the difference between the net disposal proceeds, if any, and the carrying amount, and are included in profit or loss in the period of derecognition.
Depreciation is provided on the below items, at rates intended to write down the cost less residual value of the assets over their expected useful lives. The annual rates used, which are consistent with those applied in the previous year, are as follows:
Improvements 10% per annum
Furniture, fixtures and fittings5% - 33% per annum
Computer equipment 20% per annum
Plant and machinery5% - 20% per annum
Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amount and are taken into consideration in determining the operating profit. The residual useful lives of the assets are reviewed and adjusted as appropriate, at each financial reporting date. The carrying amount of an asset is written down immediately to its recoverable amount if the carrying amount of the asset is greater than its estimated recoverable amount.
Subsequent costs are included in the carrying amount of the asset or recognized as separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group during the financial period in which they are incurred.
5.16 Revaluation of land and buildings
Land and buildings are held for use in the production or supply of goods or services or for administrative purposes. Subsequent to initial recognition, land and buildings are stated at revalued amount at the date of the revaluation less any subsequent accumulated depreciation and subsequent impairment losses. Revaluations are made for the entire class of land and buildings and with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using revaluations at the date of the statement of financial position. Any accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of the asset.
Any revaluation increase arising on the revaluation is credited to the revaluation reserve unless it reverses a revaluation decrease for the same asset previously recognised in the profit and loss, in which case, the increase is credited to profit and loss to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation is recognised in profit and loss to the extent that it exceeds the balance, if any, held in the revaluation reserve relating to a previous revaluation of that asset.
An annual transfer from the asset revaluation surplus to retained earnings is made for the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost. Additionally, accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation surplus relating to the particular asset being sold is transferred to retained earnings.
Depreciation commences when the depreciable assets are available for use and is charged to profit or loss so as to write off the cost /revalued amount, less any estimated residual value, over their estimated useful lives, using the straight-line method, on the following bases:
Buildings
2%
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
46
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.17Investment properties
Investment properties are properties held to earn rentals or for capital appreciation or both. Investment properties are recognized as an asset when it is probable that the future economic benefits that are associated with the investment properties will flow to the entity and the cost can be measured reliably.
Investment properties are initially measured at cost, including transaction costs, less impairment losses. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in fair values of investment properties are included in profit and loss in the period in which they arise, including the corresponding tax effect. Fair values are determined by a professionally qualified architect/surveyor on the basis of market values.
Investment properties are derecognized either when they have been disposed of (i.e. at the date the recipient obtains control) or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit and loss in the period of derecognition. The amount of consideration to be included in the gain or loss arising from the derecognition of investment properties is determined in accordance with the requirements for determining the transaction price in IFRS 15.
Transfers are made to (or from) investment properties only when there is a change in use. For transfer from investment properties to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.
5.18 Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is determined on a weighted average cost basis. Net realisable value is the price at which stocks can be sold in the course of business less anticipated costs of selling. Provision is made where necessary for obsolete, slow moving and defective stock.
Property held for development and re-sale is stated at the lower of cost and net realisable value. The cost includes the purchase price of the property and development costs incurred to date. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing and selling.
The cost of development and common costs are apportioned on the basis of the costs absorbed during the stage of development and the cost of land is apportioned on the basis of the floor area.
Cost incurred in bringing each property to its present location and condition includes:
-Freehold and leasehold rights for land
-Amounts paid to contractors for development
-Planning and design costs, costs of site preparation, professional fees for legal services, property transfer taxes, development overheads and other related costs
When an inventory property is sold, the carrying amount of the property is recognised as an expense in the period in which the related revenue is recognised. The carrying amount of inventory property recognised in profit or loss is determined with reference to the directly attributable costs incurred on the property sold and an allocation of any other related costs based on the relative size of the property sold.
Inventory properties are classified as non-current when these are expected to be realised after more than one year from reporting date.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
47
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.19Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits and short term, highly liquid investments readily convertible to known amounts of cash and subject to significant risk of changes in value. For the purpose of the statement of cashflows, cash and cash equivalents consist of cash in hand and deposits at banks, net of outstanding overdrafts.
5.20Non-current assets held for sale
The Group classifies non-current assets (principally investment properties) and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale (except for investment properties measured at fair value) are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset (disposal group), excluding finance costs and income tax expense.
The criteria for held for sale classification is regarded as met only when the sale is highly probable, and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan to sell the asset and the sale is expected to be completed within one year from the date of the classification. Investment properties held for sale continues to be measured at fair value. Assets and liabilities classified as held for sale are presented separately in the statement of financial position.
5.21Legal merger
The merger is accounted using the book value method of accounting, whereby the acquiring company recognises the assets acquired and liabilities assumed at the carrying amounts in the consolidated financial statements as of the date of the legal merger, on the effective date of as stipulated in the Draft Terms of Merger.
5.22 Ordinary shares and dividends
Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares are recognized as a deduction from equity.
Dividends to holders of equity instruments are recognised as liabilities in the period in which they are declared. Dividends to holders of equity instruments are debited directly in equity.
5.23 Provisions
Provisions are recognised when the Group and the Company have a present obligation as a result of a past event, and a reliable estimate can be made of the amount of the obligation. Provisions are measured at management’s best estimate of the expenditure required to settle the present obligation at the financial reporting date and are discounted to present value when the effect is material. Provisions are reviewed each financial reporting date and adjusted to reflect the current best estimate.
5.24 Financial Guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
If not measured as a financial liability at FVTPL and if not arising from a transfer of a financial asset, financial guarantee contracts issued by the Group and the Company are subsequently measured at the higher of the following:
-the amount of the loss allowance determined in accordance with IFRS 9; and
-the amount initially recognised less, where appropriate, cumulative amount of income recognised in accordance with the revenue recognition policies. In the case of financial guarantee contracts, the maximum exposure to credit risk is the maximum amount the entity could have to pay if the guarantee is called on.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
48
Notes to the Financial Statements – continued
5.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
5.25 Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. Related party accounts are carried at cost, net of any impairment charge.
6.SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
In preparing the financial statements, the Directors are required to make judgements, estimates and assumptions that affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities. Use of available information and application of judgment are inherent in the formation of estimates. Actual results in the future could differ from such estimates and the differences may be material to the financial statements. These estimates are reviewed on a regular basis and, if a change is needed, it is accounted for in the year the changes become known.
Except for the below, in the opinion of the Directors, the accounting estimates, assumptions and judgements made in the course of preparing these financial statements are not difficult, subjective or complex to a degree which would warrant their description as significant in terms of the requirements of IAS 1 (revised) - ‘Presentation of financial statements’.
Judgements
In the process of applying the Group’s accounting policies, the Directors have made the following judgements:
Recoverability of deferred tax assets
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon likely timing and level of future taxable profits together with future tax planning strategies (Note 31).
Deferred tax on revalued land and buildings
The Group’s own-use land and buildings within property, plant and equipment are measured at revalued amounts under IAS16. In the financial statements of the property-owning subsidiaries, these land and buildings were classified as investment property at fair value, and the resulting deferred tax liability was measured on the basis that the value of these assets will be recovered through sale (rather than through use) under the rebuttable presumption in IAS12. In Malta, the income tax rate applicable to benefits generated through operating the asset (recovery through use) is 35%, while that applicable on sale of property is 8% or 10% on the sales proceeds.
Judgement is required in preparing these financial statements to determine whether the Group will recover the value of the land and buildings through use or through sale, or partially through use and sale. During 2021, management of the property-owning subsidiaries entered into contracts with other group subsidiaries for a period of twenty years for the management and operation of the assets. This is part of a restructuring exercise in line with the updated strategy of the Group. As a result, the Group has reassessed the expected manner of recovery of these property, plant and equipment. In making this assessment, management made an estimation of the amount relating to non-depreciable assets, being land carried at fair value, where the deferred tax on revaluation assumes recovery through sale. For the depreciable portion, an estimation of the period over which management expects to recover the property, plant and equipment through use was made at the remaining number of years from the duration of the contract. The remaining balance beyond the period of use was assumed to be recovered through sale.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
49
Notes to the Financial Statements – continued
6.SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS – continued
Estimates
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year, are described below. Estimates underlying the Group and the Company’s use of the going concern assertion are described in note 2 to these financial statements.
Fair value of land and buildings and investment properties
The Group and the Company uses the services of professional valuers to revalue the land and buildings and investment properties. The professional valuers take into account market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group and the Company’s land and buildings and investment properties are revalued by independent professional qualified valuers on a rotation basis. In the years in which an independent valuation is not obtained, management reperforms fair valuations of the properties by verifying and updating all major inputs to the last independent valuation report prepared by an external independent valuer. Internal methods are therefore aligned with those used by external valuers. On a yearly basis, management assesses each property’s change in value to determine whether the change is reasonable and holds discussions with the independent valuer, as necessary.
The highest and best use of a non-financial asset takes into account the use of the asset that is physically possible, legally permissible and financially feasible, as follows:
-A use that is physically possible, takes into account the physical characteristics of the asset that market participants would take into account when pricing the asset (e.g. the location or size of a property).
-A use that is legally permissible takes into account any legal restrictions on the use of the asset that market participants would take into account when pricing the asset (e.g. the zoning regulations applicable to a property).
-A use that is financially feasible takes into account whether a use of the asset that is physically possible and legally permissible generates adequate income or cash flows (taking into account the costs of converting the asset to that use) to produce an investment return that market participants would require from an investment in that asset put to that use.
The Group and the Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimising the use of unobservable inputs. As described in Note 18, the Group and the Company uses valuation techniques that include inputs that are not always based on observable market data in order to estimate the fair value of land and building and investment properties. Note 18 provides detailed information regarding these valuation methods and the key assumptions used in performing such valuations.
Provision for expected credit losses of trade receivables
The entity applies the simplified model of recognising lifetime expected credit losses for all trade receivables as these items do not have a significant financing component. In measuring the expected credit losses, the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due and also according to the geographical location of customers.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
50
Notes to the Financial Statements – continued
7.SEGMENT INFORMATION
For management purposes, the Group is organised into business units based on its products and services and has five reportable segments, as follows:
-Hospitality
The hospitality segment operates a portfolio of hotel properties located in Valletta, Sliema and Qawra. Revenue generated by the hospitality operating segment includes revenue from accommodation, foods and beverage services and other ancillary services. Each of the services rendered is recognised at a point in time when transferring control of the contracted service to the customer.
-Construction
This operating segment undertakes construction projects with an emphasis on civil engineering works, turnkey assignments and restoration works, rendering services to both third party customers as well as companies forming part of the Group. Revenue from construction works is recognised over time, based on the proportion of works performed to date. The Directors consider that this input method is an appropriate measure of the progress towards complete satisfaction of these performance obligations under IFRS15. The Group becomes entitled to invoice customers for construction works, when a third-party assessor signs off a certificate confirming the achievement of a milestone.
-Healthcare
The healthcare operating segment encompasses Hilltop Gardens Retirement Village and Simblija Care Home, which offer tailor-made packages covering different levels of long- and short-term care. Revenue generated from health care services includes revenue recognised over time on a systematic basis based on the period consumed as a proportion of the total contractual period for: (i) revenue from Hilltop Gardens Retirement Village consisting of revenue from self-catering apartments and penthouses that are occupied by tenants for definite periods and (ii) revenue from Simblija Care Home consisting of revenue from stays for short term respite care, convalescence and post-operative recovery and intensive nursing care to the more dependent elderly residents; and revenue recognised at a point in time when transferring control of the contracted service to the customer – related to ancillary services provided at Simblija Care Home and other amenities.
-Real Estate and Development
The Group earns revenue from acting as a lessor in operating leases which do not transfer substantially all of the risks and rewards incidental to ownership of investment properties. Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease term and is included in revenue in the statement of profit or loss due to its operating nature, except for contingent rental income which is recognised when it arises. Initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income.
The sale of completed property constitutes a single performance obligation and the Group has determined that this is satisfied at the point in time when control transfers. For unconditional exchange of contracts, this generally occurs when legal title transfers to the customer. For conditional exchanges, this generally occurs when all significant conditions are satisfied. Payments are received when legal title transfers.
-Administration, Finance and Investment
The administration, finance and investment segment comprise of a number of entities whose principal activity is that of either holding investments in associate undertakings or acting as a financing arm for the Group.
No operating segments have been aggregated to form the above reportable operating segments.
The Chief Operating Decision Maker (CODM) of the Group is deemed to be the Board of Directors, who monitors the operating results of the business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial statements. The Group’s financing (including finance costs, finance income and other income) and income taxes are managed on a group basis and are not allocated to operating segments.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
51
Notes to the Financial Statements – continued
7.SEGMENT INFORMATION – continued
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties. Intra-segment revenues are eliminated upon consolidation and reflected below.
Segments for the year-ended 31 October 2022
Segments for the year-ended 31 October 2021
Hospitality
Construction
Healthcare
Real estate and
property rentals
Admin,
finance and
investment
Adjustments
and
eliminations
Consolidated
EUR
EUR
EUR
EUR
EUR
EUR
EUR
External customers
22,792,909
7,024,506
6,143,017
2,201,457
107,833
-
38,269,722
Inter-segment
-
14,731,108
-
18,090,984
6,500,101
(39,322,193)
-
__________
__________
__________
___________
___________
___________
___________
Revenue
22,792,909
21,755,614
6,143,017
20,292,441
6,607,934
(39,322,193)
38,269,722
Other operating
Income
-
17,412
21,854
122,118
9,009
2,874
173,267
Other operating
costs
(9,292,167)
(14,180,778)
(1,699,120)
(2,298,955)
(949,345)
13,480,219
(14,940,146)
Staff costs
(7,511,861)
(6,826,804)
(2,981,375)
(310,363)
(2,468,033)
3,815,839
(16,282,597)
__________
__________
__________
___________
___________
___________
___________
Adjusted EBITDA
5,988,881
765,444
1,484,376
17,805,241
3,199,565
(22,023,261)
7,220,246
Depreciation
(1,849,522)
(295,321)
(34,989)
(532)
(250,585)
(4,484,927)
(6,915,876)
Gain on revaluation
1,669,149
Operating profit
1,973,519
Share of results
of associates and joint ventures
848,954
Net finance costs
(4,125,475)
___________
Loss before tax
(1,303,002)
Taxation
1,053,898
___________
Loss for the year
(249,104)
___________
Segment assets
93,968,207
17,800,594
60,094,038
507,616,399
256,841,984
(513,561,832)
422,759,390
Segment liabilities
(77,747,940)
(16,480,856)
(69,249,124)
(224,723,098)
(156,865,861)
370,530,136
(174,536,743)
Hospitality
Construction
Healthcare
Real estate and
property rentals
Admin,
finance and
investment
Adjustments
and
eliminations
Consolidated
EUR
EUR
EUR
EUR
EUR
EUR
EUR
External customers
14,374,363
6,465,732
5,655,002
8,782,474
140,589
-
35,418,160
Inter-segment
-
2,275,002
-
21,780,589
10,985,902
(35,041,493)
-
__________
__________
__________
___________
___________
___________
___________
Revenue
14,374,363
8,740,734
5,655,002
30,563,063
11,126,491
(35,041,493)
35,418,160
Other operating
Income
5,744,354
21,602
21,488
301,677
52,082
(5,753,729)
387,474
Other operating
costs
(5,596,249)
(4,706,352)
(2,900,248)
(18,869,483)
(2,515,370)
17,263,547
(17,324,155)
Staff costs
(4,141,152)
(3,741,842)
(2,607,897)
(14,377)
(1,711,649)
514,619
(11,702,298)
__________
__________
__________
___________
___________
___________
___________
Adjusted EBITDA
10,381,316
314,142
168,345
11,980,880
6,951,554
(23,017,056)
6,779,181
Depreciation
(1,013,618)
(183,466)
(28,444)
(923,626)
(124,965)
(4,540,419)
(6,814,538)
Gain on revaluation
4,964,812
Operating profit
4,929,455
Share of results
of associates and joint ventures
541,268
Net finance costs
(4,015,575)
___________
Profit before tax
1,455,148
Taxation
473,130
___________
Profit for the year
1,928,278
___________
Segment assets
96,411,900
7,767,515
61,333,857
425,255,183
247,175,337
(463,844,542)
374,099,250
Segment liabilities
(78,897,608)
(7,552,645)
(69,794,382)
(219,301,498)
(149,102,482)
387,692,046
(136,956,569)
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
52
Notes to the Financial Statements – continued
8.REVENUE
Revenue by category of activity:
Construction works, building materials and management services, hospitality and entertainment, healthcare and sale of property and real estate fall under IFRS15 and are recognized as follows:
Timing of revenue recognition
Group
9.OTHER OPERATING INCOME
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Ancillary services
173,267
387,474
11,882
42,708
__________
__________
__________
__________
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Construction works and building materials
7,024,506
6,465,732
-
-
Hospitality and entertainment
22,508,583
13,975,203
-
-
Healthcare
5,971,575
5,523,762
-
-
Sale of property and real estate
1,292,128
8,000,350
-
-
Rental income
1,472,930
1,453,113
107,833
111,574
Management services
-
-
1,364,562
626,097
Dividend receivable
-
-
4,807,654
10,110,769
____________
____________
__________
__________
38,269,722
35,418,160
6,280,049
10,848,440
____________
____________
__________
__________
2022
2021
EUR
EUR
At a point in time
Sale of property and real estate
1,292,128
8,000,350
Hospitality and entertainment
22,508,583
13,975,203
Healthcare
1,801,517
1,580,059
___________
___________
25,602,228
23,555,612
___________
___________
Over time
Construction works, building materials and management services
7,024,506
6,465,732
Healthcare
4,170,058
3,943,703
___________
___________
11,194,564
10,409,435
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
53
Notes to the Financial Statements – continued
10.STAFF COSTS
(i)Wages and salaries are net of COVID-19 related wage supplement received from the Government of Malta which has been extended until end of May 2022. During the year, the Group received EUR1,484,865 (2021: EUR2,318,830) and the Company received EUR234,864 (March to October 2021: EUR193,671).
(ii)Capitalised salaries relate to work performed on the two main internal developments, the extension and refurbishment of the Suncrest Hotel and the redevelopment of the Verdala Site.
The average number of employees (including the Directors) during the year were:
11.FINANCE INCOME
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Personnel costs
Wages and salaries (i)
14,684,523
10,605,931
2,253,936
1,603,885
Social security costs
1,099,096
904,924
105,488
69,225
___________
___________
___________
___________
15,783,619
11,510,855
2,359,424
1,673,110
Subcontracted labour
4,314,816
1,135,626
-
-
Salaries capitalised (ii)
(3,815,838)
(944,183)
-
-
___________
___________
___________
___________
Total staff costs
16,282,597
11,702,298
2,359,424
1,673,110
___________
____________
___________
___________
Group
Company
2022
2021
2022
2021
Management and administration
173
150
39
36
Operations and distribution
511
427
2
2
___________
___________
___________
___________
684
577
41
38
___________
___________
___________
___________
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Interest income on loans and receivables
83,234
28,005
32,693
12,993
Interest income on loans to subsidiary
-
-
1,352,147
-
Interest income on investments
-
53
549,550
-
___________
___________
___________
___________
83,234
28,058
1,934,390
12,993
___________
___________
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
54
Notes to the Financial Statements – continued
12.FINANCE COSTS
13.OPERATING COSTS
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Interest on bank loans and overdrafts
762,597
670,224
-
-
Interest on debt securities in issue
3,263,989
3,225,495
860,137
860,137
Interest on lease liabilities
-
-
236,043
120,653
Interest on amounts payable to subsidiary
-
-
2,326,399
1,381,155
Interest on other loans
-
33,714
-
-
Amortisation of bond issue costs
164,124
99,362
46,301
27,659
Unrealised exchange losses
17,999
14,838
-
-
___________
___________
___________
___________
4,208,709
4,043,633
3,468,880
2,389,604
___________
___________
___________
___________
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Auditors’ remuneration
For audit services – statutory audit
147,000
130,000
19,000
16,120
For audit services – other assurance
33,750
81,500
25,000
-
For non-audit services
8,600
9,800
300
300
Stock consumed
4,162,636
3,829,407
-
-
Cost of constructing property sold
882,215
4,191,262
-
-
Construction costs
503,883
1,022,912
-
-
Movement in allowance for expected credit losses
293,241
87,304
(142,722)
121,896
Water and electricity
1,128,986
1,234,784
19,665
18,008
Repairs and maintenance
957,831
469,638
176,739
40,052
Professional fees
1,045,107
554,470
250,326
165,989
Commissions
1,263,949
912,195
907
-
Cleaning
314,662
248,496
1,917
9,836
Advertising and marketing
307,055
190,634
26,624
17,036
Insurance
268,178
227,509
45,577
67,586
Bank charges
328,441
71,189
-
2,103
Licences and permits
298,088
76,022
10,337
21,172
Provision against claims for damages
-
1,750,000
-
1,750,000
Other administrative costs
2,996,524
2,237,033
326,837
117,125
___________
__________
___________
__________
14,940,146
17,324,155
760,507
2,347,223
___________
__________
___________
__________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
55
Notes to the Financial Statements – continued
14.KEY MANAGEMENT PERSONNEL COMPENSATION
15.TAXATION
(i)Income not subject to tax generated by the Company in 2021 related to gain on disposal of investment in subsidiaries as disclosed in Note 20.
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Directors’ compensation
Short-term benefits
910,509
786,358
868,342
743,359
__________
__________
__________
__________
Other key management personnel compensation
Salaries and social security contributions
632,721
563,842
273,207
228,215
___________
___________
___________
___________
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Current income tax
-for the year
(779,291)
385,402
-
-
-losses surrendered to subsidiaries
-
-
(211,735)
(1,073,399)
Deferred tax through profit or loss
(274,607)
(858,532)
(259,124)
(303,724)
__________
__________
__________
__________
Income tax credit
(1,053,898)
(473,130)
(470,859)
(1,377,123)
__________
__________
__________
__________
Deferred tax through other comprehensive income
(2,055,405)
(1,580,743)
-
-
__________
__________
__________
__________
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
(Loss)/profit before taxation
(1,303,002)
1,455,148
470,668
51,714,876
__________
__________
__________
__________
-Tax thereon at 35%
(456,051)
509,302
164,734
18,100,207
Tax effect of:
Income not subject to tax (i)
(297,134)
(189,444)
-
(19,644,875)
Income at different tax rate
(1,479,403)
(4,107,263)
7,548
(399,950)
Disallowed expenses
926,100
1,725,128
-
-
Other permanent differences
252,590
1,589,147
(643,141)
567,495
__________
__________
__________
__________
Income tax credit for the year
(1,053,898)
(473,130)
(470,859)
(1,377,123)
__________
__________
__________
__________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
56
Notes to the Financial Statements – continued
16.EARNINGS PER SHARE
The earnings per share has been calculated on the Group’s loss for the year of EUR249,104 (2021: profit for the year of EUR1,928,278) divided by the weighted average number of ordinary shares in issue during the year.
Group
2022
2021
EUR
EUR
Weighted average number of shares in issue
1,164,688
1,164,688
__________
__________
EUR
EUR
Basic (loss) / earnings per share
(0.21)
1.66
__________
__________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
57
Notes to the Financial Statements – continued
17.PROPERTY, PLANT AND EQUIPMENT
*This transfer relates to accumulated depreciation at the date of revaluation, eliminated against the gross carrying amount for the asset.
Valuation of land and buildings
The Group’s land and buildings are revalued by independent professional qualified valuers on a rotation basis. In the years in which an independent valuation is not obtained, management reperforms fair valuations of the properties by verifying and updating all major inputs to the last independent valuation report prepared by an external independent valuer. Internal methods are therefore aligned with those used by external valuers. On a yearly basis, management assesses each property’s change in value to determine whether the change is reasonable and holds discussions with the independent valuer, as necessary.
Group
Land and buildings
Improvements
Plant and machinery
Motor vehicles
Furniture, fixtures and equipment
Total
EUR
EUR
EUR
EUR
EUR
EUR
Fair value/Cost
At 1.11.2020
223,055,401
29,333
22,289,258
820,441
46,125,405
292,319,838
Additions
2,671,758
-
340,188
3,500
1,456,848
4,472,294
Revaluation
16,588,946
-
-
-
-
16,588,946
Disposal
(28,848)
-
-
-
-
(28,848)
Loss of control of a subsidiary
(1,409,750)
-
-
(16,509)
(178,819)
(1,605,078)
Transfer from Investment Property (Note 18)
6,178,962
-
870,423
-
(1,300,605)
5,748,780
Transfer between classes
-
-
(4,097,408)
-
4,097,408
-
Other transfer*
(3,300,689)
-
-
-
-
(3,300,689)
__________
___________
__________
__________
_________
__________
At 31.10.2021
243,755,780
29,333
19,402,461
807,432
50,200,237
314,195,243
Additions
18,195,618
-
6,615,298
31,695
1,360,264
26,202,875
Impairment
-
-
(330,037)
-
-
(330,037)
Revaluation
(3,587,403)
-
-
-
-
(3,587,403)
Transfer to Investment Property (Note 18)
(2,478,180)
-
-
-
-
(2,478,180)
Other transfer*
(3,013,575)
-
-
-
-
(3,013,575)
__________
____________
__________
__________
_________
__________
At 31.10.2022
252,872,240
29,333
25,687,722
839,127
51,560,501
330,988,923
__________
____________
__________
__________
_________
__________
Depreciation
At 01.11.2020
608,108
29,333
13,319,451
538,007
27,770,335
42,265,234
Provision for the year
2,777,084
-
601,657
66,229
3,369,568
6,814,538
Loss of control of a subsidiary
-
-
-
(12,738)
(116,971)
(129,709)
Transfer*
(3,300,689)
-
-
-
-
(3,300,689)
__________
____________
__________
__________
_________
__________
At 31.10.2021
84,503
29,333
13,921,108
591,498
31,022,932
45,649,374
Provision for the year
2,929,072
-
1,327,825
65,218
2,593,761
6,915,876
Transfer*
(3,013,575)
-
-
-
-
(3,013,575)
__________
____________
__________
__________
_________
__________
At 31.10.2022
-
29,333
15,248,933
656,716
33,616,693
49,551,675
__________
___________
__________
__________
_________
__________
Net book value
At 31.10.2022
252,872,240
-
10,438,789
182,411
17,943,808
281,437,248
___________
___________
__________
__________
_________
__________
At 31.10.2021
243,671,277
-
5,481,353
215,934
19,177,305
268,545,869
___________
___________
__________
__________
_________
__________
At 01.11.2020
222,447,293
-
8,969,807
282,434
18,355,070
250,054,604
___________
___________
__________
__________
_________
__________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
58
Notes to the Financial Statements – continued
17.PROPERTY, PLANT AND EQUIPMENT – continued
The surplus on revaluation was transferred to the revaluation reserve. Note 18 provides detailed information regarding the key assumptions used in performing such revaluation.
The carrying amount of land and buildings, had they been measured at cost, would have amounted to EUR76,468,823 (2021: EUR60,254,474).
Capitalised borrowing costs
The Group commenced works on the refurbishment and extension of the Suncrest Hotel in November 2021 and the project is expected to be completed by May 2023. This project is partly financed through debt securities issued by AX Real Estates p.l.c., a subsidiary of the Company. The amount of borrowing costs capitalised during the year ended 31 October 2022 was EUR436,226 (2021: Nil). The rate used to determine the amount of borrowing costs eligible for capitalisation was 3.75% + 3-month Euribor, which is the EIR of the specific borrowing.
Company
Land and buildings
Furniture, fittings, and equipment
Motor vehicles
Total
EUR
EUR
EUR
EUR
Fair value
Cost
Cost
At 01.11.2020
-
-
-
-
Effect of merger (Note 3)
4,180,079
1,471,786
432,055
6,083,920
Additions
-
948,508
-
948,508
Transfer to investment property (Note 18)
(4,180,079)
-
-
(4,180,079)
___________
___________
__________
________
At 31.10.2021
-
2,420,294
432,055
2,852,349
Additions
-
76,595
-
76,595
___________
___________
__________
________
At 31.10.2022
-
2,496,889
432,055
2,928,944
___________
___________
__________
________
Depreciation
At 01.11.2020
-
-
-
-
Effect of merger (Note 3)
-
1,071,124
360,509
1,431,633
Provision for the year
-
113,840
8,628
122,468
___________
___________
__________
________
At 31.10.2021
-
1,184,964
369,137
1,554,101
Provision for the year
-
209,188
39,110
248,298
___________
___________
__________
________
At 31.10.2022
-
1,394,152
408,247
1,802,399
Net book value
___________
___________
__________
________
At 31.10.2022
-
1,102,737
23,808
1,126,545
___________
___________
__________
________
Net book value
At 31.10.2021
-
1,235,330
62,918
1,298,248
___________
___________
__________
________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
59
Notes to the Financial Statements – continued
18.INVESTMENT PROPERTIES
The transfers (to) / from property, plant and equipment, inventory and investment property held for sale relate to the transfer of properties resulting from a change in use, following management’s assessment of whether the property meets, or ceases to meet, the definition of investment property.
(i)Details of the transfers (to) / from property, plant and equipment
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Commencement of owner-occupation
-
(4,247,173)
-
-
Commencement of development with a view to owner-occupation
-
(5,681,686)
-
-
End of owner-occupation
2,478,180
4,180,079
-
4,180,079
__________
__________
__________
__________
2,478,180
(5,748,780)
-
4,180,079
__________
__________
__________
__________
(ii)Details of the transfers (to) / from inventory
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Commencement of development with a view to sale
-
(23,195,407)
-
-
Transfer from inventory with a view to earn rentals or for capital appreciation
28,051
-
-
-
Transfer to inventory with a view to sale
-
(750,000)
-
(750,000)
__________
__________
__________
__________
28,051
(23,945,407)
-
(750,000)
__________
__________
__________
__________
Group
Company
EUR
EUR
Fair value
At 31 October 2020
75,646,399
-
Effect of merger
-
4,550,000
Additions
1,814,933
23,484
Revaluation
4,964,812
1,532,855
Transfers (to) / from property, plant and equipment (i)
(5,748,780)
4,180,079
Transfers to inventory (ii)
(23,945,407)
(750,000)
__________
__________
Total investment properties
52,731,957
9,536,418
Less: classified as held for sale (iii)
(4,286,418)
(4,286,418)
__________
__________
At 31 October 2021
48,445,539
5,250,000
__________
__________
At 31 October 2021
48,445,539
5,250,000
Additions
980,045
15,876
Revaluation
1,669,149
-
Transfer from property, plant and equipment (i)
2,478,180
-
Transfers from inventory (ii)
28,051
-
Transfer from investment property held for sale (iii)
4,286,418
4,286,418
__________
__________
At 31 October 2022
57,887,382
9,552,294
__________
__________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
60
Notes to the Financial Statements – continued
18INVESTMENT PROPERTIES- continued
(iii)Details of transfers (to) / from investment property held for sale
At 31 October 2021, AX House in Lija was classified as an asset held for sale following the Group’s advanced negotiations with a prospective buyer who was interested in buying the property for a consideration approximately amounting to its fair value, with the intention to complete the sale in the short term. During the current year, the prospective buyer pulled out from negotiations. Management has not yet reassessed its intention with respect to realising the asset and in the short-term part of the property continues to be leased out to its existing tenant. Consequently, the Group transferred EUR4,286,418 from assets held for sale to investment property during the year.
Valuation process
The Group’s land and buildings are classified as either property, plant and equipment or investment property depending on their intended use. Land and buildings are revalued by independent professionally qualified architects or surveyors on a rotation basis. The architect is qualified and has experience in the category of investment properties being valued. The valuation models applied are in accordance with that recommended by the International Valuation Standards Committee and are consistent with the principles in IFRS13.
In the years in which an independent valuation is not obtained, management reperforms fair valuations of the properties by verifying and updating all major inputs to the last independent valuation report prepared by an external independent valuer. Internal methods are therefore aligned with those used by external valuers. On a yearly basis, management assesses each property’s change in value to determine whether the change is reasonable and holds discussions with the independent valuer, as necessary.
Changes in valuation techniques
The valuation technique used to determine the fair value of Capua Palace was changed from the replacement cost approach in the prior year to the income capitalization approach in the current year. Management believes that this approach is more appropriate since it is better aligned with the property’s future potential use as determined during the current year, that is to lease out the property as high-end office space. The change in valuation method is applied prospectively as it is a change in estimate. The Group applied the same valuation techniques used in the previous year for the rest of the properties.
Highest and best use
Except for part of Palazzo Capua which management intends to refurbish and lease as office space as explained above, the current use of the Group and the Company’s investment properties measured at fair value is considered the highest and best use.
The Group has no restrictions on the realisability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements.
Fair value hierarchy
The Group and Company’s property is classified as Level 3 in the fair value hierarchy. The different levels in the fair value are defined in Note 5.10.
The Group and Company’s policy is to recognize transfers into and out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. There were no transfers between levels during the year.
All gains and losses for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, recorded in the statement of profit or loss and other comprehensive income, amount to EUR1,658,884. These are attributable to changes in unrealized gains or losses relating to investment property held at the end of the reporting period.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
61
Notes to the Financial Statements – continued 
18.INVESTMENT PROPERTIES – continued
Fair value hierarchy – continued
Group
Details of the investment properties and land and buildings and information about their fair value hierarchy as at the end of the year:
(i)Investment Properties
(ii)Land and Buildings
Valuation techniques used to derive Level 3 fair value
For investment properties categorized under Level 3 of the fair value hierarchy, the valuation was determined by a combination of the market approach, the replacement cost approach and the income capitalization approach as applicable.
(i)Investment Properties
Type of Property
Valuation Technique
Inputs
Sensitivity
Residential property amounting to EUR4,159,000 (2021: EUR3,839,000)
Income capitalisation approach
Income capitalization approach: total projected stabilised EBITDA of EUR740,688 (2021: EUR520,800) using an average growth of 2% (2021: same), discount rate of future income of 11.83% (2021: same), estimated terminal land value, capitalisation yield of 4.5% (2021: same) and discount rate of 5% (2021: same).
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value.
Commercial property amounting to EUR2,712,963*
Income capitalisation approach
The valuation relies on estimated commercial rental rates and yearly return of the various components of the existing building capitalized at a rate of 7%. Annual rental rate of EUR425 per sqm is assumed and EUR320,000 for the ancillary property.
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value.
Commercial property amounting to EUR11,105,000 (2021: EUR9,970,035)
Income capitalisation approach
The inputs used to calculate the total value of the property is an annual return in the range of EUR40 and EUR177 per square meter (2021: same) at a capitalisation rate of 6% (2021: same).
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value.
Land amounting to EUR19,000,000 (2021: EUR18,757,836)
Income capitalisation approach
The inputs used to calculate the total value of the property on completion is an annual return of EUR 145 per square meter (2021: same) at a capitalisation rate of 7% (2021: 5%) less costs to implement.
The higher the capitalisation rate, the lower the fair value. The higher the annual return per square meter the higher the fair value.
Land amounting to EUR6,508,531 (2021: EUR5,827,678)
Market approach
Market transaction
The higher the rates, the higher the fair value.
Type of Property
Level 3
Total
Date of
EUR
EUR
Valuation
Land
6,508,532
6,508,532
31/10/2020
19,000,000
19,000,000
31/10/2022
Commercial property
4,302,294
4,302,294
31/10/2021
2,712,963
2,712,963
31/10/2022
11,104,999
11,104,999
31/10/2022
Residential
410,990
410,990
31/10/2020
5,278,604
5,278,604
31/10/2021
8,569,000
8,569,000
31/10/2022
Total
57,887,382
57,887,382
Type of Property
Level 3
Total
Date of
EUR
EUR
Valuation
Commercial property
252,872,240
252,872,240
31/10/2022
Total
252,872,240
252,872,240
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
62
Notes to the Financial Statements – continued 
18.INVESTMENT PROPERTIES – continued
Valuation techniques used to derive Level 3 fair value – continued
(i)Investment Properties – continued
Type of Property
Valuation Technique
Inputs
Sensitivity
Residential property amounting to EUR410,990 (2021: same)
Market approach
Based on prices of similar property
The higher the market rates, the higher the fair value
Residential property amounting to EUR5,278,604 (2021: EUR5,250,000)
Replacement cost approach
This method takes into account the actual physical building fabric constituting the facility, together with an estimated land value. The valuation relies on estimated going rates of the various components of the existing building.
The higher the rates for construction, finishings, services and fittings the higher the fair value.
Residential property amounting to EUR4,410,000 (2021: EUR4,390,000)
Market approach
The valuation of investment property was based on market rates for comparable advertised properties taking into account the size, fit out of the subject units, location of the property and current situation of the residential and commercial property market.
The higher the market rates, the higher the fair value.
Commercial property amounting to EUR4,302,294**
Income capitalisation approach
The inputs used to calculate the total value of the property is an annual return of EUR100-EUR300 per square meter at a capitalisation rate of 5.5%
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value.
*Transferred from owner-occupied property to investment property during the current year as disclosed in Details of the transfers (to) / from property, plant and equipment in Note 18.
**Classified as investment property held for sale during the prior year as disclosed in Details of transfers (to) / from investment property held for sale in Note 18.
(ii)Land and Buildings
Type of Property
Valuation Technique
Inputs
Sensitivity
Commercial property amounting to EUR8,135,340 (2021: EUR7,703,880)
Income capitalisation approach
The inputs used to calculate the total value of the property is an annual return in the range of EUR40 and EUR270 per square meter (2021: same) at a capitalisation rate in the range of 5.75% to 6% (2021: same).
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value.
Commercial property amounting to EUR41,583,710
(2021: EUR39,601,504)
Average of profits method; income capitalisation approach and replacement cost approach
Profits method: EBIDTA of EUR2,187,871 (2021: EUR2,189,955), capitalisation yield of 5.5% (2021: same), land appreciation of 4.5% per annum (2021: same), discount rate for commercial property sale at termination 5% (2021:same) and EBITDA multipliers ranging between 11.6X to 16.5X (2021: 11.7X to 16.5X).Income capitalization approach: EBIDTA of EUR2,187,871 (2021: EUR1,596,000), capitalisation yield of 5.5% (2021: same), land appreciation of 4.5% per annum (2021: same), discount rate for commercial property sale at termination 5% (2021: same) and discount rate for future income ranging 7.5%-11.83% (2021: same).Replacement cost approach: This method takes into account the actual physical building fabric constituting the facility, together with an estimated land value. The valuation relies on estimated going rates of the various components of the existing building.
Profits method: The higher the EBITDA and capitalisation yield, the higher the fair value.
Income capitalization approach: The higher the EBITDA and capitalisation yield, the higher the fair value.
Replacement cost approach: The higher the rates for construction, finishings, services and fittings, the higher the fair value
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
63
Notes to the Financial Statements – continued 
18.INVESTMENT PROPERTIES – continued
(ii)Land and Buildings – continued
Type of Property
Valuation Technique
Inputs
Sensitivity
Commercial property amounting to EUR6,220,000 (2021: EUR4,790,000)
Income capitalisation approach
Income capitalization approach: total projected stabilised EBITDA of EUR1,728,273 (2021: EUR1,215,200) using an average growth of 2% (2021: same), discount rate of future income of 11.83% (2021: same), estimated terminal land value, capitalisation yield of 4.5% (2021: same) and discount rate of 5% (2021: same).
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value.
Income capitalization approach: a stabilised EBIDTA range between EUR1,112,989 (2021: EUR1,136,310) and EUR16,242,053 (2021: EUR7,496,738) taking between 2% and 3% yearly growth rate (2021: 2%), capitalisation yield of 8.33% (2021: same), land appreciation of 4.5% (2021: same) per annum, discount rate for commercial property sale at termination between 5% and 5.25% (2021: same) and discount rate for future income of 11.83% (2021: same).
Commercial property amounting to EUR190,346,153
(2021: EUR182,601,740)
Average of income capitalisation approach and replacement cost approach
Replacement cost approach: This method takes into account the actual physical building fabric constituting the facility, together with an estimated land value. The valuation relies on estimated going rates of the various components of the existing building.
Income capitalization approach: The higher the EBITDA and capitalisation yield, the higher the fair value.
Replacement cost approach: The higher the rates for construction, finishings, services and fittings, the higher the fair value.
Commercial property amounting to EUR6,587,037 (2021: EUR9,025,159)*
Income capitalisation approach**
The valuation relies on estimated commercial rental rates and yearly return of the various components of the existing building capitalized at a rate of 7%. Annual rental rate of EUR425 per sqm is assumed for the Palazzo EUR320,000 for the ancillary property.
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value.
*During the year, part of the property was transferred from owner-occupied property to investment property as disclosed in Details of the transfers (to) / from property, plant and equipment in Note 18.
**During the year, the valuation technique used to determine revalued amount of this commercial property was changed as disclosed in Changes in valuation techniques in Note 18.
Company
Details of the investment properties and information about their fair value hierarchy as at the end of the year:
Valuation techniques used to derive Level 3 fair value
For investment properties categorized under Level 3 of the fair value hierarchy, the valuation was determined by a combination of the market approach and the income capitalization approach as applicable.
Type of Property
Valuation Technique
Inputs
Sensitivity
Commercial property amounting to EUR4,302,294*
Income capitalisation approach
The inputs used to calculate the total value of the property is an annual return of EUR100-EUR300 per square meter at a capitalisation rate of 5.5%
The higher the capitalisation rate, the lower the fair value. The higher the rental income and growth rate the higher the fair value.
Residential property amounting to EUR5,250,000 (2021: EUR5,250,000)
Replacement cost approach
This method takes into account the actual physical building fabric constituting the facility, together with an estimated land value. The valuation relies on estimated going rates of the various components of the existing building.
The higher the rates for construction, finishings, services and fittings the higher the fair value.
*Classified as investment property held for sale during the prior year as per Details of transfers (to) / from investment property held for sale in Note 18.
Type of Property
Level 3
Total
Date of
EUR
EUR
Valuation
Commercial property
4,302,294
4,302,294
31/10/2021
Residential
5,250,000
5,250,000
31/10/2022
Total
9,552,294
9,552,294
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
64
Notes to the Financial Statements – continued
19.LEASES
Group as a lessor
The operating leases relating to investment properties owned by the Group have terms between 1 and 20 years. The lessee does not have the option to purchase the property at the expiry of the lease period. The income earned under the operating lease amounted to EUR1,472,930 (2021: EUR1,329,637).
At the end of the reporting period, the lessee had outstanding commitments under non-cancellable operating leases, which fall due as follows:
Company as a lessee
On 23 November 2021, the Company entered into a new lease agreement with a subsidiary for the rental of part of a warehouse for a period of ten years starting 1 January 2022. In terms of the lease agreement, the Company pays annual rent of EUR35,419.
On 1 November 2020, the Company had entered into a new lease agreement with a subsidiary for the rental of its Head Office for a period of ten years. The lease was superseded by a new lease agreement effective on 1 July 2021 for a period of twenty years and four months, in terms of which the Company pays annual rent of EUR354,706.
The carrying amounts of right-of-use assets recognized and the movements during the year are as follows:
EUR
Initial recognition at 1 November 2020
1,871,009
Lease modification at 1 July 2021
3,281,704
Depreciation on right-of-use assets
(207,160)
Closing balance at 31 October 2021
4,945,553
Recognition of a new lease
450,407
Depreciation on right-of-use assets
(266,044)
Closing balance at 31 October 2022
5,129,916
2022
2021
EUR
EUR
Within one year
1,238,800
1,132,838
Between two and five years
2,014,755
1,744,526
Over five years
903,663
598,646
___________
___________
4,157,218
3,476,010
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
65
Notes to the Financial Statements – continued
19.LEASES - continued
The carrying amounts of lease liabilities and the movements during the year are as follows:
EUR
Initial recognition at 1 November 2020
1,871,009
Lease modification at 1 July 2021
3,281,704
Accretion of interest
120,653
Amounts set-off in respect of payments
(263,333)
Closing balance at 31 October 2021
5,010,033
Recognition of new lease
450,407
Accretion of interest
236,043
Amounts set-off in respect of payments
(374,583)
Closing balance at 31 October 2022
5,321,900
Current
155,364
Non-current
5,166,536
5,321,900
20.INVESTMENT IN SUBSIDIARIES
Company
These financial statements comprise the results and position of the Group and the Company at 31 October 2022, which is a common year-end of all subsidiaries forming part of the Group. The list of consolidated subsidiaries is disclosed in Note 4.
(i)During 2021, the Group went through a reorganisation exercise whereby the shares in a number of subsidiaries were sold to another subsidiary, AX Real Estates p.l.c., for the purpose of consolidating the main property letting activities of the Group into a newly formed sub-group. The Company sold the shares held in these subsidiaries for a consideration of EUR83,695,921, net of reversals of past capital contributions amounting to EUR6,600,000. The cost as at the date of disposal amounted to EUR37,678,476, resulting in a gain on disposal of investment in subsidiaries amounting to EUR46,017,445. The addition to investment in subsidiaries relates to an investment in a newly formed subsidiary, Verdala Terraces Limited which is a limited liability company incorporated in Malta on 30 September 2021.
(ii)On 23 November 2021, AX Real Estate p.l.c., a subsidiary of the Company, issued 150,000,000 ordinary ‘B’ shares of a nominal value of EUR0.125 each in favour of the Company by virtue of the capitalisation of a loan due to the Company amounting to EUR50,000,000 at EUR0.3334 each, split as to EUR0.125 per share in nominal value and EUR0.2084 per share in share premium. The Company made a further capital contribution of EUR1,598,000 in other subsidiaries.
Cost
EUR
At 1 November 2020
1,655,298
Effect of merger (Note i)
71,071,612
Additions
2,012,993
Disposals (Note i)
(37,678,476)
Reduction in capital contributions (Note i)
(6,600,000)
At 31 October 2021
30,461,427
Disposal
(4,950)
Increase in capital contributions (Note ii)
1,598,000
Capitalisation of loan receivable (Note 22) (Note ii)
50,000,000
At 31 October 2022
82,054,477
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
66
Notes to the Financial Statements – continued
21.INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
Group
The Group has a 36% interest and voting rights in Valletta Cruise Port p.l.c. (2021: 36%), 33% interest and voting rights in Imselliet Solar Limited (2021: 33%) and 50% interest and voting rights in Hardrocks Estates Limited (2021: 50%). The entities are privately owned entities registered and operating in Malta and are not listed on any public exchange. The Group’s interest in Valletta Cruise Port p.l.c., Imselliet Solar Limited and Hardrocks Estates Limited is accounted for using the equity method in the consolidated financial statements.
The Group’s carrying amount of the investments includes goodwill amounting to EUR1,449,613 (2021: EUR1,449,613) resulting upon acquisition of an interest at an amount higher than its book value.
The following table illustrates the summarised financial information of the Group’s investment in these entities:
The associates had no contingent liabilities or capital commitments at 31 October 2022 and 31 October 2021.
Investments in associates and joint ventures
EUR
At 31 October 2020
6,512,096
Loss of control of a subsidiary
348,337
Share of results
541,268
_________
At 31 October 2021
7,401,701
_________
Share of results
848,954
_________
At 31 October 2022
8,250,655
_________
2022
2021
EUR
EUR
Current assets
6,195,190
4,506,285
___________
___________
Non-current assets
53,728,014
53,818,502
___________
___________
Current liabilities
4,267,296
5,015,152
___________
___________
Non-current liabilities
37,154,407
37,132,325
___________
___________
Revenue
12,289,907
6,251,963
___________
___________
Profit for the year
2,484,331
844,844
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
67
Notes to the Financial Statements – continued
22.LOANS RECEIVABLE AND OTHER FINANCIAL ASSETS
Group
Loans to shareholders and to other related party are unsecured, bear an interest rate of 4% and are repayable by 31 December 2023. The entity determines the expected credit loss allowance on these loans based on a probability of default of 0.16% and a loss given default of 100%.
Company
Loans receivable from shareholders
Loans receivable from other related party
Total
EUR
EUR
EUR
At 31 October 2020
-
-
-
New loan origination
830,318
900,000
1,730,318
_________
_________
_________
At 31 October 2021
830,318
900,000
1,730,318
_________
_________
_________
New loan origination
32,693
-
32,693
_________
_________
_________
At 31 October 2022
863,011
900,000
1,763,011
_________
_________
_________
Loans Receivable
Investment in debt securities
EUR
EUR
Cost
Fair Value
At 1 November 2020
27,377,040
-
Effect of merger
(27,377,040)
-
Additions
113,836,334
-
Transfer from current receivable
130,443
-
At 31 October 2021
113,966,777
-
Repayment of loan
(3,481,838)
-
Acquisition of to debt securities
(21,645,400)
21,645,400
Disposal of debt securities
-
(525,000)
Capitalisation of receivable balance (Note 20)
(50,000,000)
-
Fair value movement
-
(631,500)
At 31 October 2022
38,839,539
20,488,900
Expected credit loss
At 1 November 2020
43,803
-
Movement for the year
125,311
-
At 1 November 2021
169,114
-
Movement for the year
(130,651)
-
At 31 October 2022
38,463
-
Net book value
At 31 October 2022
38,801,076
20,488,900
At 31 October 2021
113,797,663
-
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
68
Notes to the Financial Statements – continued
22.LOANS RECEIVABLE AND OTHER FINANCIAL ASSETS - continued
Loans receivable
Loans receivable include loans to shareholders amounting to EUR863,011 (2021: EUR830,318) which are unsecured, bear an interest rate of 4% and are repayable by 31 December 2023. The remaining balance relates to subsidiary undertaking loans, which are unsecured, carries interest at 3% + Euribor (2021: 3%) and is repayable on 31 December 2034. The entity determines the expected credit loss allowance on the Group undertakings loans based on a probability of default of 0.16% and a loss given default of 100%. The increase in loan during 2021 mostly relates to the disposal of investment in subsidiaries and the reassignment of loans following a Group restructuring. The reduction in loan during 2022 relates to the capital contribution made to AX Real Estate p.l.c. mentioned above as well as the allocation of EUR21,645,400 of bonds issued by AX Real Estate p.l.c. to the Company through the part conversion of the existing intra-group loan.
Investment in debt securities
These relate to the allocation of EUR21,645,400 of bonds issued by AX Real Estate p.l.c. to the Company through the part conversion of the existing intra-group loan mentioned above. Fair values of these debt instruments are determined by reference to published price quotations in an active market. The fair value of the debt securities at 31 October 2022 amounted to EUR20,488,900.
23.INVENTORIES
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Property held for development and re-sale
38,516,896
25,427,271
3,179,131
762,466
Raw materials and consumables
2,012,323
1,277,973
-
-
___________
___________
___________
___________
40,529,219
26,705,244
3,179,131
762,466
___________
___________
___________
___________
Current
3,506,446
3,509,837
762,466
762,466
Non-current
37,022,773
23,195,407
2,416,665
-
___________
___________
___________
___________
40,529,219
26,705,244
3,179,131
762,466
___________
___________
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
69
Notes to the Financial Statements – continued 
24.TRADE AND OTHER RECEIVABLES
(i)Trade and other receivables are non-interest bearing, and repayable on 60 day terms.
Impairment of financial assets – trade receivables
The entity applies the simplified model of recognising lifetime expected credit losses for all trade receivables as these items do not have a significant financing component. In measuring the expected credit losses, the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due and also according to the geographical location of customers. The expected credit losses for trade receivables as at 31 October 2022 was determined as follows:
2022
Current
>30 days
>60 days
>90 days
>180 days
>365 days
Total
Expected credit loss rate
%
0.20-2.40
0.29-2.88
0.48-4.23
0.73-10.28
2.68-22.02
100
Gross carrying amount
EUR
2,123,788
1,505,224
251,315
107,257
234,614
245,719
4,467,917
Lifetime expected credit loss
EUR
4,520
12,961
9,444
16,062
26,433
-
69,420
Provision for doubtful debts
EUR
-
-
-
-
719,901
-
719,901
2021
Current
>30 days
>60 days
>90 days
>180 days
>365 days
Total
Expected credit loss rate
%
0.10-3.03
0.18-3.70
0.47-6.50
1.14-30.12
1.47-32.68
100
Gross carrying amount
EUR
1,899,844
578,357
156,623
101,927
153,544
323,404
3,213,699
Lifetime expected credit loss
EUR
12,750
3,086
2,489
4,230
9,105
123,334
154,994
Provision for doubtful debts
EUR
-
-
-
-
406,531
-
406,531
(ii)Amounts owed by associates, other related parties, subsidiaries and shareholders are unsecured, interest-free and have no fixed date of repayment. Amounts owed by associates represent dividends receivable.
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Trade receivables (i)
4,467,917
3,213,699
52,788
14,486
Provision for doubtful debts (i)
(719,901)
(406,531)
-
-
Allowance for ECL on trade receivables (i)
(69,420)
(154,994)
-
-
___________
___________
___________
___________
3,678,596
2,652,174
52,788
14,486
Amounts owed by associates (ii)
811,844
1,269,399
-
-
Amounts owed by other related parties (ii)
177,502
141,590
17,024
19,217
Amounts owed by subsidiaries (ii)
-
-
8,038,160
7,486,452
Shareholders’ current account (ii)
2,193,483
1,610,269
2,028,089
1,448,054
Allowance for ECL on balances owed by related parties
-
-
(8,823)
(20,894)
Advanced payments to suppliers
5,011,457
611,746
-
72,002
Indirect taxation
1,046,267
-
-
-
Other receivables
2,309,432
1,211,250
1,964,142
1,211,250
Prepayments and accrued income
2,752,452
2,731,872
30,270
715
___________
___________
___________
___________
17,981,033
10,228,300
12,121,650
10,231,282
___________
___________
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
70
Notes to the Financial Statements – continued
25.CASH AND CASH EQUIVALENTS
Cash and cash equivalents included in the cash flow statement comprise the following:
The Group and the Company engaged in the following significant non-cash investing and financing activities during the year:
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Non-cash investing activities
Assets taken over upon merger (Note 3)
-
-
-
5,934,314
Proceeds upon disposal of subsidiaries (Note 20)
-
-
-
83,695,921
Additional investment in subsidiaries
-
-
-
1,962,993
Effect of loss of control of subsidiary
-
1,129,173
-
-
Sale of inventory to related parties (Note 22)
-
830,318
-
-
Non-cash financing activities
Investment in subsidiaries taken over upon
merger (Note 3)
-
-
-
71,071,612
Capitalisation of loan receivable into new shares in subsidiary (Note 20)
50,000,000
-
Dividend declared by subsidiary (Note 8)
-
-
-
10,110,769
Sale of investment in subsidiaries (Note 20)
-
-
-
(37,678,476)
Reduction in capital contribution (Note 20)
-
-
-
(6,600,000)
Increase in capital contribution (Note 20)
1,598,000
-
Additional/(reduction) of loans to related
parties (Note 22)
-
900,000
-
12,701,083
Effect of loss of control of subsidiary
-
(402,131)
-
-
Allocation of debt securities issued by subsidiary (Note 22)
-
-
21,645,400
-
26.CONSTRUCTION CONTRACTS
As at year-end, retentions held by customers for contract works amounted to EUR532,411 (2021: EUR300,761).
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Cash at bank and in hand
13,881,138
5,911,979
146,931
25,683
Bank overdrafts (Note 28)
(4,302,388)
(2,200,250)
-
(1,142)
___________
___________
___________
___________
9,578,750
3,711,729
146,931
24,541
___________
___________
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
71
Notes to the Financial Statements – continued
27.TRADE AND OTHER PAYABLES
(i)Trade payables are non-interest bearing and repayable within a 60-day term.
(ii)Other payables include a provision of EUR1,750,000 (2021: EUR1,750,000) against claims for damages by the Commissioner of Lands for alleged illegal occupation of two tracts of land by a subsidiary of the Group. The Group is currently in negotiations with the commissioner to settle the matter amicably.
(iii)Accruals and deferred income mainly primarily to upfront receipts from retirement home residents which will be recognised as revenue when the performance obligation is satisfied.
28.BANK BORROWINGS
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Trade payables (i)
7,911,414
3,781,668
282,604
125,685
Other payables (ii)
4,733,101
5,549,132
2,705,853
2,740,571
Indirect taxation and social security
-
32,844
145,056
218,694
Accruals and deferred income (iii)
21,742,550
17,620,908
111,596
30,862
___________
___________
__________
__________
34,387,065
26,984,552
3,245,109
3,115,812
___________
___________
__________
__________
Current
21,347,630
13,684,744
3,186,570
2,987,024
Non-current
13,039,435
13,299,808
58,539
128,788
___________
___________
__________
__________
34,387,065
26,984,552
3,245,109
3,115,812
___________
___________
__________
__________
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Bank loans
30,799,635
19,212,972
-
-
Bank overdrafts (Note 25)
4,302,388
2,200,250
-
1,142
___________
___________
___________
___________
35,102,023
21,413,222
-
1,142
___________
___________
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
72
Notes to the Financial Statements – continued
28.BANK BORROWINGS – continued
Bank loans and overdrafts are repayable as follows:
The Group has aggregate bank facilities of EUR38,999,638 (2021: EUR27,412,974) of which EUR4,237,192 (2021: EUR6,011,835) were undrawn as at the reporting date. These facilities are secured by general hypothecs over the group assets, by special hypothecs over various immovable properties, by pledges over various insurance policies, and by personal guarantees of the ultimate controlling party. They bear interest at 3.25% to 5.15% per annum (2021: 3.25% to 5.15%).
29.OTHER FINANCIAL LIABILITIES
(i)Amounts owed to subsidiaries are unsecured, interest free and have no fixed date of repayment, except for an aggregate amount of EUR29,934,923 (2021: EUR30,021,228) which bears interest in the range of 3-10% and is expected to be repaid between 2024-2034 disclosed within non-current financial liabilities.
(ii)Amounts owed to other related parties are unsecured, interest-free and have no fixed date of repayment.
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
On demand or within one year
7,975,770
6,474,023
-
1,142
Between two and five years
24,724,181
11,986,284
-
-
After five years
2,402,072
2,952,915
-
-
___________
___________
___________
___________
35,102,023
21,413,222
-
1,142
___________
___________
___________
___________
Current
7,975,770
6,474,023
-
1,142
Non-current
27,126,253
14,939,199
-
-
___________
___________
___________
___________
35,102,023
21,413,222
-
1,142
___________
___________
___________
___________
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Amounts owed to subsidiaries (i)
-
-
61,211,372
59,332,635
Amounts owed to other related parties (ii)
80,712
-
76,000
-
__________
__________
___________
___________
Total other financial liabilities
80,712
-
61,287,372
59,332,635
__________
__________
___________
___________
Current
80,712
-
31,352,449
29,311,407
Non-current
-
-
29,934,923
30,021,228
__________
__________
___________
___________
Total other financial liabilities
80,712
-
61,287,372
59,332,635
__________
___________
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
73
Notes to the Financial Statements – continued
30.DEBT SECURITIES IN ISSUE
Group and Company
During 2022, AX Real Estate p.l.c., a subsidiary of the Company, issued an aggregate principal amount of EUR40,000,000 (2022 – 2032), having a nominal value of EUR100 each, bearing interest at the rate of 3.5% per annum. EUR21,645,400 were assigned to the Company as part conversion of the loan receivable from AX Real Estate p.l.c. as described in Note 22. These bonds are unsecured and subject to the terms and conditions in the prospectus dated 6 December 2021. The bonds are listed on the Official Companies List of the Malta Stock Exchange. The quoted market price as at 31 October 2022 for the 3.5% bonds (2022 – 2032) was EUR97.01. The fair value of the bonds as at 31 October 2022 amounted to EUR38,265,665. The carrying value of the bond as at 31 October 2022 amounted to EUR39,500,567. Interest on the bonds is due and payable annually in arrears on 7 February of each year at the above-mentioned rate.
As at year-end, AX Real Estate p.l.c. had a balance of EUR39,500,567 from this bond issue. The amount is made up of the bond issue of EUR18,354,600 net of the bond issue costs which are being amortised over the lifetime of the bonds and of EUR21,645,400 were assigned to AX Group p.l.c. as described above.
During 2020, AX Group p.l.c. issued an aggregate principal amount of EUR25,000,000 bonds, split in two tranches of EUR15,000,000 (2020 – 2026) and EUR10,000,000 (2020 – 2029), having a nominal value of EUR100 each, bearing interest at the rate of 3.25% and 3.75% respectively per annum. These bonds are unsecured and subject to the terms and conditions in the prospectus dated 22 November 2019. The bonds are listed on the Official Companies List of the Malta Stock Exchange. The quoted market price as at 31 October 2022 for the 3.25% bonds (2020 – 2026) was EUR100 (2021: EUR102.25) and for the 3.75% bonds (2020 – 2029) was EUR99.99 (2021: EUR103). The fair value of the bonds as at 31 October 2022 amounted to EUR15,000,000 (2021: EUR15,337,500) and EUR9,999,000 (2021: EUR10,303,000) respectively, which amounts to an aggregated fair value of EUR24,999,000 (2021: EUR25,640,500). The carrying value of the bonds as at 31 October 2022 amounted to EUR24,736,174 (2021: EUR24,689,873).
As at year-end, the Company had a balance of EUR24,736,174 from this bond issue. The amount is made up of the bond issue of EUR25,000,000 net of the bond issue costs which are being amortised over the lifetime of the bonds.
In addition to the above, during 2014, AX Investments p.l.c., a subsidiary company, issued an aggregate principal amount of EUR40,000,000 bonds (2014 -2024), having a nominal value of EUR100 each, bearing interest at the rate of 6% per annum. These bonds are unsecured and subject to the terms and conditions in the prospectus dated 3 February 2014. The bonds are listed on the Official Companies List of the Malta Stock Exchange. The quoted market price as at 31 October 2022 for the 6% bonds (2014 – 2024) was EUR103.5 (2021: EUR104). The fair value of the bond as at 31 October 2022 amounted to EUR41,400,000 (2021: EUR41,600,000). The carrying value of the bond as at 31 October 2022 amounted to EUR39,913,935 (2021: EUR39,851,606). Interest on the bonds is due and payable annually in arrears on 6 March of each year at the above-mentioned rate. In terms of the offering memorandum of the “6% AX Investments p.l.c. 2024 Bond”, AX Group p.l.c., has provided a corporate guarantee in favour of the bondholders to affect the due and punctual performance of all payment obligations undertaken by the subsidiary under the bonds if it fails to do so.
As at year-end, AX Investments p.l.c. had a balance of EUR39,913,935 from this bond issue. The amount is made up of the bond issue of EUR40,000,000 net of the bond issue costs which are being amortised over the lifetime of the bonds. Interest on the bonds is due and payable annually in arrears on 6 March at the above-mentioned rate.
Management intends that upon its redemption date, being 6 March 2024, the bond will be repaid or rolled over. Such repayment is dependent on the Group’s ability to raise further liquidity. As a result, management is considering alternative financing options, including the issuance of a new bond by AX Group p.l.c., with the proceeds therefrom committed to be advanced to AX Investments p.l.c.
As at year-end, the Group had a balance of EUR82,423,921 from the bond issues. The amount is made up of the bond issues of EUR83,354,600 net of bond issue costs which are being amortised over the life of the bonds.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
74
Notes to the Financial Statements – continued
30.DEBT SECURITIES IN ISSUE – continued
Group and Company – continued
Group
Company
2022
2021
EUR
EUR
At beginning of year
63,956,123
63,856,761
Bonds issued during the year (net of bond issue costs)
39,465,891
-
Bonds held by group entities
(21,645,400)
-
Bond issue costs amortization for the year
647,307
99,362
___________
___________
82,423,921
63,956,123
___________
___________
Accrued interest
2,798,243
2,316,985
___________
___________
At end of year
85,222,164
66,273,108
Current
2,798,243
2,316,985
Non-current
82,423,921
63,956,123
___________
___________
85,222,164
66,273,108
___________
___________
2022
2021
EUR
EUR
At beginning of year
24,689,873
24,662,214
Bond issue costs amortised for the year
46,301
27,659
___________
___________
24,736,174
24,689,873
___________
___________
Accrued interest
744,349
746,712
___________
___________
At end of year
25,480,523
25,436,585
Current
744,349
746,712
Non-current
24,736,174
24,689,873
___________
___________
25,480,523
25,436,585
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
75
Notes to the Financial Statements – continued
31.DEFERRED TAX LIABILITIES
As at year-end, unabsorbed tax losses and other temporary differences for which no asset is recognised in the Group amounted to EUR8,325,070 (2021: EUR10,875,846).
32.CALLED UP ISSUED SHARE CAPITAL
Company and Group
Each ordinary share gives the right to one vote, participates equally in profits distributed by the Company and carries equal rights upon the distribution of assets by the Company in the event of a winding up.
Revaluation reserve
The Company’s revaluation reserve arises on the revaluation of investment properties and land and buildings net of deferred tax. When the revalued property is sold, the portion of the property revaluation reserve that relates to that asset, and is effectively realised, is transferred directly to retained earnings.
Retained earnings
The reserve represents accumulated retained profits that are available for distribution to the Company’s shareholders.
Group
Company
2022
2021
2022
2021
EUR
EUR
EUR
EUR
Arising on:
Excess of capital allowances over depreciation
128,471
(45,915)
42,623
14,110
Provision for doubtful debts
(332,179)
(270,587)
(16,550)
(66,503)
Unabsorbed tax losses and capital allowances
(4,995,158)
(4,331,994)
(257,392)
(185,453)
Revaluation of investment properties
24,943,645
26,934,183
762,913
762,913
Net lease position
-
-
(67,194)
(22,568)
Fair value movement of investment in debt securities
-
-
(221,025)
-
___________
___________
___________
___________
19,744,779
22,285,687
243,375
502,499
___________
___________
___________
___________
2022
2021
EUR
EUR
Authorised
300,000,000 ordinary shares of EUR1 each
300,000,000
300,000,000
___________
___________
Called up issued and fully paid up
1,164,688 (2021: 1,164,688) ordinary shares of EUR1 each
1,164,688
1,164,688
___________
___________
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
76
Notes to the Financial Statements – continued
32.CALLED UP ISSUED SHARE CAPITAL – continued
Dividend paid
No dividend was declared and paid by the Company during the year-ended 31 October 2022 (2021: same).
During the year, AX Real Estate p.l.c., a subsidiary of the Company, declared and paid a dividend amounting to EUR304,208 due to non-controlling interest.
33.CONTINGENT LIABILITIES
At 31 October 2022, the Group had the following contingent liabilities, for which no provision has been made in these financial statements:
-A third party is claiming damages from a subsidiary for injuries suffered. The court adjudicated the case in favour of the third party and awarded the sum of EUR78,906 in damages which the subsidiary has appealed in terms of both responsibilities and quantification of damages. The subsidiary is fully covered by insurance.
-As at year-end, two subsidiaries had blocked funds relating to a garnishee order in favour of third parties amounting to EUR 74,251 (2021: EUR74,251). The Directors are confident that the outcome of all the above claims will be in favour of the subsidiaries.
-Various guarantees were given in favour of third parties amounting to EUR1,764,516 (2021: EUR8,995,976).
34.CONTINGENT ASSETS
A subsidiary of the Group was awarded the sum of Eur40,986 in compensation for services rendered with the third party appealing the judgement. In 2020, a subsidiary was adjudicated a compensation amounting to EUR310,848 for damages in a court case it had initiated relating to a building permit which was withheld. Both parties are appealing to this decision and are requesting a revision of the compensation.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
77
Notes to the Financial Statements – continued
35.CAPITAL COMMITMENTS
Commitments for capital expenditure with respect to the development and completion of a number of projects stood as follows:
2022
EUR
Authorised and contracted 37,509,692
Authorised but not contracted 72,348,576
36.RELATED PARTIES
The ultimate controlling party of the Group is Mr Angelo Xuereb, who holds 55% of the voting rights of the Company.
Group
All entities in which Mr Xuereb has control, has significant influence or is a member of the key management personnel are considered to be “related parties” in these financial statements. Related parties also comprise of key management who have the ability to control or exercise a significant influence in financial and operating decisions.
Balances with related parties are disclosed in Note 22 and Note 24.
Company
All subsidiaries of AX Group p.l.c. are deemed to be related parties in these financial statements.
Transactions with related parties
The Company entered into transactions with related parties as follows:
2022
2021
EUR
EUR
Management services (Note 8)
1,364,562
626,097
Dividend received from subsidiaries (Note 8)
4,807,654
10,110,769
Interest receivable from subsidiaries (Note 11)
1,352,147
-
Interest payable to subsidiaries (Note 12)
2,326,399
1,381,155
Gain on disposal of investment in subsidiaries
-
46,039,416
Capitalisation of loan receivable into new shares in
subsidiary (Note 20)
50,000,000
-
Increase in capital contribution (Note 20)
1,598,000
-
Assignment of debt securities issued by subsidiary (Note 22)
21,645,400
-
Balances with related parties
Balances with related parties are disclosed in Note 22 and Note 24.
37.RISK MANAGEMENT OBJECTIVES AND POLICIES
The most significant financial risks to which the Group and the Company are exposed to are described below.
The Group and the Company are exposed to credit risk, liquidity risk and market risk through its use of financial instruments which result from its operating, investing and financing activities. The Group’s and the Company’s risk management is coordinated by the Directors and focuses on actively securing the Group’s and the Company’s short term to medium term cash flows by minimising the exposure to financial risks.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
78
Notes to the Financial Statements – continued
37.RISK MANAGEMENT OBJECTIVES AND POLICIES – continued
Credit risk
The Group’s and the Company’s credit risk is limited to the carrying amount of financial assets recognised at the date of the statement of financial position, which are disclosed in Notes 20, 21 and 22.
The Group and the Company continuously monitor defaults of customers and other counterparts and incorporate this information into their credit risk controls. The Group and the Company’s policy is to deal with creditworthy counterparties.
None of the Group’s and the Company’s financial assets are secured by collateral or other credit enhancements.
The credit risk for liquid funds is considered to be negligible, since the counterparties are reputable institutions with high quality external credit ratings.
Quoted investments are acquired after assessing the quality of the relevant investments. Cash is placed with reliable financial institutions.
Liquidity risk
The Group’s and the Company’s exposure to liquidity risk arises from its obligations to meet financial liabilities, which comprise debt securities, trade and other payables and other financial liabilities. Prudent liquidity risk management includes maintaining sufficient cash and committed credit facilities to ensure the availability of an adequate amount of funding to meet the Group’s and the Company’s obligations when they become due.
At 31 October 2022 and 31 October 2021, the contractual maturities on the financial liabilities of the Company and the Group were as summarized below. Contractual maturities reflect gross cash flows, which may differ from the carrying values of financial liabilities at the date of the statement of financial position.
Group
Financial Guarantee
For each financial guarantee contract issued, the Group has to determine the amount of expected credit loss in accordance with IFRS9. The Company provided a financial guarantee to secure the banking facilities of a subsidiary for an amount of EUR14,295,974. Moreover, as disclosed in Note 28, the Company has provided a parent company guarantee in favour of bondholders for the repayment of the bond and interest thereon on the bond issued by AX Investments p.l.c., pursuant to and the terms and conditions in the prospectus. Management has carried out an assessment on the loans receivable provided by the Issuer to other related parties which has been quantified as not material. Accordingly, the financial guarantee in the Company is deemed not to be material.
2022
Less than 6 months
From 6 to 12 months
From 1 to 5 years
More than 5 years
Total
EUR
EUR
EUR
EUR
EUR
Bank borrowings
2,616,435
2,060,514
25,738,624
2,573,240
32,988,813
Debt securities in issue
1,952,456
1,952,456
62,932,144
32,691,654
99,528,710
Other payables
12,644,515
-
-
-
12,644,515
Total
17,213,406
4,012,970
88,670,768
35,264,894
145,162,038
2021
Less than 6 months
From 6 to 12 months
From 1 to 5 years
More than 5 years
Total
EUR
EUR
EUR
EUR
EUR
Bank borrowings
3,121,832
1,678,418
13,121,373
3,213,842
21,135,465
Debt securities in issue
1,631,250
1,631,250
48,250,000
26,987,500
78,500,000
Other payables
9,330,800
-
-
-
9,330,800
Total
14,083,882
3,309,668
61,371,373
30,201,342
108,966,265
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
79
Notes to the Financial Statements – continued 
37.RISK MANAGEMENT OBJECTIVES AND POLICIES – continued
Foreign currency risk
Foreign currency transactions arise when the Group and the Company enter into transactions denominated in a foreign currency. Foreign currency transactions mainly comprise transactions in US Dollars and GB Pounds.
The risk arising from foreign currency transactions is managed by regular monitoring of the relevant exchange rates. The Directors consider foreign exchange risk exposure not to be material and accordingly a sensitivity analysis disclosing how profit or loss and other comprehensive income would change as a result of a reasonable possible shift in foreign exchange rates, is not considered necessary.
Interest rate risk
The Group and the Company’s exposure to interest rate risk is limited to the variable interest rates on borrowings. This applies to all of the Group’s bank borrowings as per Note 28 whose applicable interest rates are linked to either the 3-month Euribor or the bank’s base rate. Based on observations of current market conditions, the directors consider an upward or downward movement in interest of between 1% to 2% to be reasonably possible. However, the potential impact of such a variance is considered immaterial.
38.CAPITAL MANAGEMENT
For the purpose of the Group’s and the Company’s capital management, capital includes issued capital and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Group’s and the Company’s capital maximise the shareholder value.
The Group and the Company manage their capital structure and make adjustments in light of changes in economic conditions. To maintain and adjust the capital structure, the Group and the Company may adjust the dividend payment to shareholders or issue new debt. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group includes within net debt Interest bearing loans and borrowings, trade and other payables and other financial liabilities less cash and cash equivalents
2022
2021
EUR
EUR
Interest bearing loans and borrowings
120,324,187
85,369,345
Other financial liabilities
80,712
-
Trade and other payables
34,387,065
26,984,552
Less: cash and cash equivalents
(13,881,138)
(5,911,979)
Net Debt
140,910,826
106,441,918
Equity
1,164,688
1,164,688
Other reserves
233,746,032
235,265,310
Total capital
234,910,720
236,429,998
Capital and net debt
375,821,546
342,871,916
Gearing ratio
37.5%
31.0%
No changes were made in the objectives, policies and processes for managing capital during the years ended 31 October 2022 and 2021.
AX GROUP P.L.C.
Annual Report and Consolidated and Separate Financial Statements for the year-ended 31 October 2022
80
Notes to the Financial Statements – continued
39.PRIOR PERIOD RECLASSIFICATIONS
Certain amounts within the comparative statement of profit or loss and other comprehensive income have been reclassified or amended to achieve better comparability and conformity with the current period. In this respect, amortization of bond issue costs reported by the Group and the Company during the prior year amounting to EUR99,362 and EUR27,659 respective were reclassified from operating costs to finance costs during the current financial year.
40.SUBSEQUENT EVENTS
In November 2022, the Company declared an interim dividend amounting to EUR1,100,000.
In January 2023, Suncrest Hotels p.l.c. obtained a sanction letter from a local financial institution for a Loan Facility amounting to EUR30,500,000 while AX Hotel Operations p.l.c. obtained a sanction letter from the same financial institution for a Loan Facility amounting to EUR18,000,000. These loan facilities have been provided to enable the Group to complete the extension of the Suncrest Hotel and redevelopment of the Lido in Qawra. The Loan Facilities bear interest of 4.25% p.a. and the outstanding loan amounts are repayable over a 15-year term from the date of the first drawdown with a 12-month capital moratorium.
In January 2023, AX Real Estate p.l.c., a subsidiary of the Company, declared a dividend amounting to EUR304,208 due to non-controlling interest.
Verdala Terraces Limited signed a loan facility contract with a local financial institution in February 2023 for a Loan Facility amounting to EUR36,000,000 to finance the Verdala Terraces residential project in Rabat. The Loan Facility bears an interest rate of 4.66% per annum and the outstanding loan amounts are repayable within 7 years from the date of the first drawdown. Loan repayments are to be settled from the proceeds generated from the sale of units at the Verdala Terraces project.
In line with management’s intention to dispose of the bonds allocated by AX Real Estate p.l.c. to the Company, the Company disposed of EUR2.9million of such bonds subsequent to year end.
Ernst & Young Malta Limited
Regional Business Centre
Achille Ferris Street
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Tel: +356 2134 2134
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81
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Group p.l.c.
Report on the audit of the financial statements
Opinion
We have audited the consolidated and separate financial statements of AX Group p.l.c. (the “Company”) and its subsidiaries (the “Group”), set on pages 22 to 80, which comprise the consolidated and separate statements of financial position as at 31 October 2022, and the consolidated and separate statements of comprehensive income, the consolidated and separate statements of changes in equity and the consolidated and separate statements of cash flows for the year then ended, and notes to the consolidated and separate financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated and separate financial statements give a true and fair view of the financial position of the Group and the Company as at 31 October 2022, and of their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU (“IFRS”) and the Companies Act, Cap. 386 of the Laws of Malta (the “Companies Act”).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs) and the Companies Act. Our responsibilities under those standards and under the Companies Act are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) as issued by the International Ethics Standards Board of Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in accordance with the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act, Cap. 281 of the Laws of Malta, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
82
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Group p.l.c.
Report on the audit of the financial statements
Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.
Going concern
As required by International Financial Reporting Standards and as disclosed in the Statement of Directors’ Responsibilities, the Directors are required to adopt the going concern basis in the preparation of the financial statements, unless it is inappropriate to presume that the Group and the Company will continue in business in the foreseeable future.
As disclosed in Note 2.1 to the consolidated and separate financial statements, based on the Group's budget and forecast, the Directors confirm that they are satisfied that the Group will be able to meet its working capital commitments and assess that the Group has sufficient liquidity to meet all its obligations when and as they fall due in the foreseeable future. Given the nature of the Company and its function within the Group of which it is the ultimate parent, the Company is dependent on the Group for financial support.
Management has prepared a cashflow forecast for the Group, considering significant events and transactions that have occurred or are expected to occur subsequent to year end and has concluded that as a result of the strength of the Group’s financial position, the Group will be able to sustain its operations over the foreseeable future in a manner that is cash flow positive.
In preparing this forecast, management has assumed that the Group will repay the “6% AX Investments p.l.c. 2024 Bond” (“the bond”), issued by the Group’s fully owned subsidiary AX Investments p.l.c. and for which AX Group p.l.c has provided a parent company guarantee. Management’s forecast is based on the assumption that on 6 March 2024, being the bond’s redemption date, the bond will be repaid or rolled over. As disclosed in Note 30, such repayment is dependent on the Group’s ability to raise further liquidity. As a result, management is considering alternative financing options, including the issuance of a new bond by AX Group p.l.c., with the proceeds therefrom committed to be advanced to AX Investments p.l.c.
At the time of approving these financial statements, the Directors have determined that there is a reasonable expectation that the Group and the Company have adequate resources to continue in operation and existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these consolidated and separate financial statements.
83
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Group p.l.c.
Report on the audit of the financial statements
Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud – continued
Going concern - continued
The Group’s liquidity forecast underlying the going concern assessment is subject to significant estimation and therefore represents a key audit matter.
Our audit procedures included evaluating the Directors’ going concern assessment in order to assess whether there are events and conditions that exist that create material uncertainty that may cast significant doubt of the Group’s and the Company’s ability to continue as a going concern.
In obtaining sufficient, appropriate audit evidence we:
•Obtained the Group’s cash flow forecast for the period subsequent to the reporting date up until October 2024 and discussed these with management. We have also focused on updates made with respect to the uncertainties around COVID-19 expected recovery period. We also tested the arithmetical accuracy of the forecast.
•Evaluated the Directors’ ability to accurately forecast by comparing actual to historical information. As part of our procedures on events after the reporting period, obtained an understanding of the precision of management’s forecast and considered any potential management bias included in such projections.
•Assessed for reasonableness of the main inputs and assumptions used in the projections, such as operational cash flows, inflows from sales of property, capital expenditures, debt financing and other funding availability against our understanding of the business and industry developments, historical data and any other available information.
•Performed an analysis of the capital expenditure forecasted by the Group to be incurred on its major development projects and the availability of funding to finance such expenditure, taking into consideration the terms of the equity and debt issue by AX Real Estates p.l.c. during February 2022 as per the Offering Memorandum and bank sanction letters for additional financing.
•Performed an independent sensitivity analysis, stress-testing key inputs, assumptions and contingency plan to assess whether the liquidity headroom calculations are reasonable.
•Attended meetings with management to discuss the Group’s plan for refinancing the “6% AX Investments p.l.c. 2024 Bond”, whereby management and those charged with governance were able to provide us with satisfactory responses. This refinancing plan was approved by the Board.
We also assessed the relevance and adequacy of disclosures relating to going concern presented in Note 2.1 and Note 30 to the accompanying financial statements.
84
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Group p.l.c.
Report on the audit of the financial statements
Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud – continued
Fair valuation of land and buildings classified as property, plant and equipment, and investment properties
The Group’s land and buildings classified as property, plant and equipment, which are being further described in Notes 5.16, 6 and 17 to the accompanying financial statements, account for 60% of total assets as at 31 October 2022. Land and buildings are measured at fair value at the date of revaluation, less any subsequent accumulated depreciation and impairment losses.
The Group also holds investment properties, which are being further described in Notes 5.17, 6 and 18 to the accompanying financial statements, accounting for 14% of total assets of the Group as at 31 October 2022. Investment properties are stated at fair value, which reflects market conditions at the reporting date.
The Group uses the services of professional qualified and independent valuers to revalue the land and buildings classified as property, plant and equipment, and the investment properties, on the basis of assessments of the fair value of the property in accordance with international valuation standards and best practice. The valuations are arrived at by a combination of the income capitalization approach, the replacement cost approach and the market approach as applicable.
In the years in which an independent valuation is not obtained, management reperforms fair valuations of the properties by verifying and updating all major inputs to the last independent valuation report prepared by an external independent valuer. Internal methods are therefore aligned with those used by external valuers. On a yearly basis, management assesses each property’s change in value to determine whether the change is reasonable and holds discussions with the independent valuer, as necessary.
The valuation of property at fair value is highly dependent on estimates and assumptions such as:
•the capitalisation rate, rental income and respective growth rate under the income capitalisation approach;
•the estimated land value and going rates for construction, finishing, services and fittings under the replacement cost approach; and
•the market prices for comparable advertised properties under the market approach.
85
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Group p.l.c.
Report on the audit of the financial statements
Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud – continued
Fair valuation of land and buildings classified as property, plant and equipment, and investment properties – continued
Therefore, due to the significance of the balances and the estimation uncertainty involved in the fair valuation of properties, we have considered the fair valuation of land and buildings classified as property, plant and equipment, and investment properties as a key audit matter.
Our audit procedures over the fair valuation of land and buildings classified as property, plant and equipment, and investment properties included amongst others:
•evaluating the design and implementation of key controls over the Group’s property valuation process by inquiring with the valuation process owners;
•performing tests relating to the valuation of the Group’s property, focusing on management reviews over the property valuations by inspecting management analysis and minutes of meetings of the board and audit committee where such valuation was discussed;
•obtaining an understanding of the scope of work of the professional valuers by reviewing the available valuation reports and considered the independence and expertise thereof;
•obtaining an understanding of the process followed by management in the years where an independent valuation is not obtained and an update is performed internally.
•including a valuation specialist on our team to assist us in assessing the appropriateness of the valuation approaches applied, as well as evaluating the reasonability and validity of key assumptions and estimates used in the valuations by comparing to independent sources and relevant market data and conditions; and
•performing procedures over the accuracy and completeness of the inputs used in the valuations in the light of our understanding of the business and industry developments, historical data and other available information.
We also assessed the relevance and adequacy of disclosures relating to the Group’s fair valuation of land and buildings classified as property, plant and equipment, and investment properties presented in Notes 5.16, 5.17, 6, 17 and 18 to the accompanying financial statements.
86
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Group p.l.c.
Report on the audit of the financial statements
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon other than our reporting on other legal and regulatory requirements.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors and those charged with governance for the financial statements
The directors are responsible for the preparation and fair presentation of the financial statements in accordance with IFRS and the requirements of the Companies Act and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and the Company or to cease operations, or have no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s and the Company’s financial reporting process.
87
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Group p.l.c.
Report on the audit of the financial statements
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
•identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
•obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control;
•evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors;
•conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the Company to cease to continue as a going concern;
•evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation;
•obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
88
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Group p.l.c.
Report on the audit of the financial statements
Auditor’s responsibilities for the audit of the financial statements - continued
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on other legal and regulatory requirements
Matters on which we are required to report by the Companies Act
Directors’ report
We are required to express an opinion as to whether the directors’ report has been prepared in accordance with the applicable legal requirements. In our opinion the directors’ report has been prepared in accordance with the Companies Act.
In addition, in the light of the knowledge and understanding of the Group and the Company and their environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the Directors’ report. We have nothing to report in this regard.
Other requirements
We also have responsibilities under the Companies Act to report if in our opinion:
•proper accounting records have not been kept;
•proper returns adequate for our audit have not been received from branches not visited by us;
•the financial statements are not in agreement with the accounting records and returns;
•we have not received all the information and explanations we require for our audit.
We have nothing to report to you in respect of these responsibilities.
Appointment
We were appointed as the statutory auditor by the General Meeting of Shareholders of the Company on 28 October 2020. The total uninterrupted engagement period as statutory auditor, including previous renewals and reappointments amounts to 3 years.
Consistency with the additional report to the audit committee
Our audit opinion on the financial statements expressed herein is consistent with the additional report to the audit committee of the Company, which was issued on the same date as this report.
Non-audit services
No prohibited non-audit services referred to in Article 18A(1) of the Accountancy Profession Act, Cap. 281 of the Laws of Malta were provided by us to the Group and the Company and we remain independent of the Group and the Company as described in the Basis for opinion section of our report.
No other services besides statutory audit services and services disclosed in the annual report and in the financial statements, were provided by us to the Group and the Company and its controlled undertakings.
89
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Group p.l.c.
Report on other legal and regulatory requirements
Report on compliance with the requirements of the European Single Electronic Format Regulatory Technical Standard (the “ESEF RTS”), by reference to Capital Markets Rule 5.55.6
We have undertaken a reasonable assurance engagement in accordance with the requirements of Directive 6 issued by the Accountancy Board in terms of the Accountancy Profession Act (Cap. 281) - the Accountancy Profession (European Single Electronic Format) Assurance Directive (the “ESEF Directive 6”) on the annual financial report of AX Group p.l.c. for the year ended 31 October 2022, entirely prepared in a single electronic reporting format.
Responsibilities of the directors
The directors are responsible for the preparation of the annual financial report, including the consolidated financial statements and the relevant mark-up requirements therein, by reference to Capital Markets Rule 5.56A, in accordance with the requirements of the ESEF RTS.
Our responsibilities
Our responsibility is to obtain reasonable assurance about whether the annual financial report, including the consolidated financial statements and the relevant electronic tagging therein comply in all material respects with the ESEF RTS based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with the requirements of ESEF Directive 6.
Our procedures included:
• Obtaining an understanding of the entity's financial reporting process, including the preparation of the annual financial report, in accordance with the requirements of the ESEF RTS.
• Obtaining the annual financial report and performing validations to determine whether the annual financial report has been prepared in accordance with the requirements of the technical specifications of the ESEF RTS.
• Examining the information in the annual financial report to determine whether all the required taggings therein have been applied and whether, in all material respects, they are in accordance with the requirements of the ESEF RTS.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the annual financial report for the year ended 31 October 2022 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS.
90
A member firm of Ernst & Young Global Limited.
Registered in Malta No: C30252
INDEPENDENT AUDITOR’S REPORT
to the Shareholders of AX Group p.l.c.
Report on other legal and regulatory requirements
Matters on which we are required to report by the Capital Markets Rules
Corporate governance statement
The Capital Markets Rules issued by the Malta Financial Services Authority (“MFSA”) require the directors to prepare and include in their annual report a statement of compliance providing an explanation of the extent to which they have adopted the Code of Principles of Good Corporate Governance and the effective measures that they have taken to ensure compliance throughout the accounting period with those Principles.
The Capital Markets Rules also require the auditor to include a report on the statement of compliance prepared by the directors. We are also required to express an opinion as to whether, in the light of the knowledge and understanding of the Group and the Company and its environment obtained in the course of the audit, we have identified material misstatements with respect to the information referred to in Capital Markets Rules 5.97.4 and 5.97.5.
We read the statement of compliance and consider the implication for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements included in the annual report. Our responsibilities do not extend to considering whether this statement is consistent with the other information included in the annual report.
We are not required to, and we do not, consider whether the Board’s statements on internal control included in the statement of compliance cover all risks and controls, or form an opinion on the effectiveness of the Company’s governance procedures or its risk and control procedures.
In our opinion:
•the corporate governance statement set out on pages 19 to 21 has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the MFSA
•in the light of the knowledge and understanding of the Company and the Group and its environment obtained in the course of the audit the information referred to in Capital Markets Rules 5.97.4 and 5.97.5 are free from material misstatement
Other requirements
Under the Capital Markets Rules we also have the responsibility to review the statement made by the Directors, set out on page 3, that the business is a going concern, together with supporting assumptions or qualifications as necessary.
We have nothing to report to you in respect of these responsibilities.
The partner in charge of the audit resulting in this independent auditor’s report is
Christopher Balzan for and on behalf of
Ernst & Young Malta Limited
Certified Public Accountants
27 February 2023